Performance Funding & Academic Incentives

Can a funding scheme based on for-profit world motivation make a positive difference in the not-for-profit world of higher education? I am optimistic – but not for the reasons that policymakers may suppose.

Public higher education in the United States is increasingly supported through Performance Based Funding (PBF). A recent report by the Education Policy Center at the University of Alabama, Performance Based Funding: The National Landscape highlights the rise of PBF. It is embraced by the Obama administration. Most states use some form of PBF, especially for community college systems. Many of the states that do not use PBF are now considering it. Foundations, organizations, and reformers advocate for it. Complete College America, for example, sees PBF is an important part in raising graduation rates. PBF is well on the way to being our new “normal.”

PBF comes in many flavors but its underlying concept is consistent: specific performance measures result in allocations. PBF incentivizes institutions to focus on achieving certain outcomes to receive funding. PBF was initially rolled out in the late 1970s but never caught on or demonstrated the improvements that its advocates claimed. In its newer iteration, goals and measures are being developed collaboratively by legislatures with higher education officials. States set aside a percentage of higher education funding – from 1% to all (in Tennessee) – and allocate it according to PBF models.

The very process of developing PBF models is forcing states to be much more explicit and strategic about their higher education goals. This aligns with the recommendations of the Lumina Foundation. Lumina, which has a goal of 60% of Americans college educated by 2025, wants states to set specific goals for completion and measures to attain them. Massachusetts, for example, is implementing a PBF model for the Commonwealth’s fifteen community colleges. The plan is based on many of the findings of a Boston Foundation report on community colleges and is aimed to prepare workers for jobs. Community college presidents supported the plan in part because they thought that it might be a means of obtaining new funding in a period of flat enrollment.

With decades of experimentation for analysis, recommendations for PBF best practices are becoming more clear. In the report From Idea to Action, Dennis Jones, President of the National Center for Higher Education Management Systems, spells out a number of very sensible actions that include:

  • Getting agreement and shared understanding by all the key parties before implementing the plan
  • Making sure the measures and metrics are broad
  • Encouraging mission specialization (not mission creep)
  • Providing support for vulnerable populations of students
  • Supporting progress toward ultimate goals as well as support for the ultimate goal
  • Generating interest with large enough funding pools
  • Evaluating the system in an ongoing manner

Virtually every large-scale higher education policy changes would benefit from following Jones’ recommendations. Sadly, they are not as nearly common sense as one might hope.

Some object to PBF. The AAUP argues that the root cause of higher education’s ills is a lack of funding, not poorly designed measures and metrics. The AAUP’s president, Rudy Fichtenbaum, worries that PBF will dumb down higher education as academia will respond by focusing on testing outcomes. The Community College Research Center at Columbia University has more nuanced concerns based on data and careful analysis.  The CCRC sees little evidence of PBF improving outcomes without additional resources and a collaborative targeting of shared issues and solutions. In other words, PBF is not a panacea without greater higher education funding and ongoing commitment from both institutions of higher education and government.

Several faculty and academic leaders I know have expressed different objections. They identify PBF as another step in the “corporatization” of higher education. Corporatization is a catchphrase that lumps together a range of changes, from increased accountability to high pay for college presidents to data-driven decision-making to many other shifts. Listen closely and nested within the complaint is a value statement. Less legitimate complaints about corporatization stem from a want to maintain the status quo, to avoid accountability and the data. However, other criticisms rest on the observation that money and profit – the driving goals of business – are the wrong motivating factors in higher education. The economy of education is different. Taken a step further, these critics believe that the imposition of a financial market on the broader educational enterprise can have a negative effect on intellectual freedom and discovery. This perspective reflects the view of a sizable number of academics.

Many academicians – smart people, to be sure – make what classical economists would call an irrational choice: they have chosen a career in higher education. Higher education offers significantly less compensation than a career in business. Yet academics are not, by definition, irrational. Rather, I think that the majority of people who choose to work in higher education are motivated by outcomes in addition to money. We seek student learning and success. We want to help others. We want students to appreciate education. Money matters, to be sure, but it is a less reliable motivator. Quite simply, one has to be motivated by non-economic factors in order to pursue a career in higher education. For faculty, the hurdles of a graduate degree demand a commitment to academic values. Acknowledged or not, non-monetary idealism has a home in American colleges and universities.

There is much merit in performance based funding models, I believe, especially if the concerns of the CCRC are addressed. I also believe that the development of shared goals for higher education systems – the first steps in all PBF best practices – is by far the most important outcome that the whole endeavor can offer. Bringing together higher educational institutions and systems with the policy makers that establish funding and accountability mechanisms is extraordinarily valuable. Institutions of higher education cannot do this on their own. Broadly shared goals for higher education are difficult to develop and adhere to over the long-term. When they do persist, they can have a profound impact on educational culture and practice – as anyone who has spent time at mission-driven institutions can attest.

Without broader goals, the question of what is strategic and what is effective must be determined locally and it may, or may not, be in accord with the prevailing sentiment in the state capitol. Goals and direction can give institutions tools to align policy and practice. System goals enable institutions to function more strategically and more effectively. They sharpen purpose.

System goals also – and I write here as a college president – give institutions opportunities to prove their tremendous worth to government and the public at large. We know that we do extremely important and valuable work educating students. PBF is a way for us to document performance. It is a means to lay claim for state support. We we very much want the public to support higher education, to invest in higher education, and perhaps most saliently, to recognize the value of education. It is one of academia’s non-monetary goals.

David Potash

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