SREB Outlines Elements of Outcomes-Based Funding Policy for College Completion


States that want to use the way they fund higher education to increase college completion should clearly define their statewide goals, funding sources and measures, emphasizing number of graduates over graduation rates, says a new policy brief from the Southern Regional Education Board.

More than half of states nationwide now use some form of performance- or outcomes-based funding, which awards dollars to public colleges and universities in part based on meeting goals rather than on enrollment only. This is one strategy states might consider to increase completion, said Cheryl Blanco, SREB vice president and author of the report. 

Essential Elements of State Policy for College Completion: Outcomes-Based Funding details practices in states across the country. Arkansas law, for example, requires 25 percent of funding for public postsecondary institutions to be based on outcomes by 2017-2018.Tennessee  awards 100 percent of base funding on outcomes. And Texas legislation directs the state higher education coordinating agency to take into account undergraduate student success.  

The policy brief examines the questions policy-makers need to answer if they explore this strategy and presents SREB’s recommendations for eight essential elements of an effective, statewide outcomes-based funding policy.

For example, formal legislative or statewide board policy should articulate a commitment to increase the percentage of adults who hold postsecondary degrees or certificates, Blanco said. And the size of the outcomes-based funding pool needs to be significant enough to influence institutions’ actions — at least 25 percent of state appropriations outside tuition proceeds.

Funding should reward increases in numbers of credentials awarded, or a higher proportion of a state’s total credentials from the particular institution, rather than a higher graduation rate.  

“The goal is to increase the percentage of a state’s population with postsecondary credentials,” Blanco said. “That means we need to graduate more students, not simply a higher percentage of students enrolled.”

Other recommendations in the report:

  • Formulas should give more weight to progress by at-risk students, those from low-income backgrounds, students returning after a break from college, and those transferring from two- to four-year institutions.
  • A state may prefer funding pools for each kind of institution, or use different formulas for community colleges, research universities and regional institutions.
  • Policy-makers need to look for ways to phase in new formulas for a smooth transition and to avoid pressure to relax standards to reach completion goals.
  • Targeted, easy-to-understand metrics are essential. Reporting should be in place at the outset.