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Performance Funding for Higher Education: What Are the Mechanisms? What Are the Impacts?

By: Kevin Dougherty & Vikash Reddy

Abstract

Performance Funding for Higher Education: What Are the Mechanisms? What Are the Impacts?

For several decades, policymakers have been actively seeking to improve the student outcomes produced by higher education institutions. In this quest, performance funding has emerged as a popular approach. Unlike performance reporting or performance budgeting, performance funding ties institutional funding directly to performance outcomes, based on a formula using indicators such as student retention, attainment of certain credit levels, and graduation numbers. Performance funding first appeared in Tennessee and to this date some 27 states have tried it.

This monograph comprehensively reviews the national and state literature on the forms and impacts of performance funding. It describes how performance funding is intended to work, what states have adopted it, and what has been its history in eight leading states. The monograph then goes on to examine the impacts of performance funding on college academic and student-support policies and on student outcomes.

In addition, the monograph analyzes what obstacles performance funding has encountered at the institutional level and what unintended impacts it produces for institutions and for students. The monograph concludes with policy recommendations and suggestions for further research.