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Report: Outcomes-Based Funding Models Need to be Made More Equitable

More than 30 states have outcomes-based funding models, which allocate money to colleges and universities at least partly based on various metrics for student success. But a new report by The Education Trust – examining outcomes-based funding formulas across the country from 2017 to 2020 – argues that these models perpetuate inequities in the ways they’re currently designed.

For one thing, these formulas often penalize underresourced institutions, creating a cyclical “self-fulfilling prophecy,” noted co-author Dr. Kalya C. Elliott, the Education Trust’s interim director for higher education policy.Money 2180330 640 1

“…Institutions that do the lion’s share of serving students of color and low-income students – and already have fewer resources – continue to receive fewer resources and smaller allocations through the outcomes-based funding model, giving them less and forcing them to do more with less,” Elliott said.

In particular, research shows minority serving institutions, like historically Black colleges and universities, “tended to lose more money” in states using these models, compared to their predominantly White counterparts, said Dr. Nicholas Hillman, associate professor of educational leadership and policy analysis and director of the Student Success Through Applied Research Lab at University of Wisconsin. He co-authored a 2018 study called “The Equity Implications of Paying for Performance in Higher Education.”

In Tennessee, for example, he found that Tennessee State University, the state’s only HBCU, gained virtually no new funding since a performance-based funding model was put in place, while other campuses made significant gains.

“That was, I guess, on some level, not at all surprising because a lot of these formulas at the time didn’t try to make any adjustments for students’ race or ethnicity or the profile of students served by colleges,” Hillman said.

The Education Trust report suggests that, overall, performance-based funding models still neglect to sufficiently measure and incentivize positive outcomes for low-income students and students of color.

It found that 26 states base funding partly on whether institutions are increasing success for students from low-income families. But only 19 states include success metrics for students of color. A mere six states incorporate minority student enrollment as a part of their formula, and only four states include or allow a measure for campus racial climate.

To Elliott, that’s a significant omission.

“Entry and exit, enrollment and completion, are the bookends of a students’ experience,” she said. “What happens in between is incredibly important, and what happens in between captures their lived, day-to-day experience. We think it’s important that institutions provide campuses that are safe, that are welcoming, that are inclusive and that prepare students to engage with their peers and in their careers in ways that are based in equity and justice.”

In the absence of an equity focus in these formulas, the report points to cases where universities actually became more selective, decreasing their low-income student and minority student enrollment, or pushed students toward associate and certificate degrees, rather than bachelor’s degrees, to keep success metrics up.

To avoid this, Elliott recommends states bake equity into their success measures, but that’s just a start.

“A state has to have the right metrics, it has to have the right funding and it has to have the right implementation,” she said. “There are states that have equity metrics for race but are assigning so little funding through the system that it’s not enough to actually incentivize changes in institutional behavior and it’s not enough to actually give institutions enough resources to invest in the type of student success models that would improve completion.”

The report lays out a detailed step-by-step guide to designing – and implementing – more equitable and stable outcomes-based funding models. It advocates for mandatory equity metrics that include race and socioeconomic status, giving extra weight for enrollment of low-income students and students of color and incentivizing a positive racial climate.

It also calls on states to reward schools making incremental progress toward larger student success goals and to give them a grace period to adjust to new requirements, so underresourced institutions can build up their capacity.

The report asserts that, to do this, state-level officers need to be diverse, seek input from the schools disproportionately serving underrepresented students and invest in their student supports, among other strategies.

Outcomes-based funding formulas can be a powerful tool for change, Elliott said, if crafted correctly.

Discussions about outcomes-based funding “can be narrowly focused on graduation or completion as success, and this report was an opportunity to broaden that …” she said. “Outcomes-based funding can broaden the definition of student success to make sure the institutions that are serving low-income students and students of color have the resources they need to do so.”

For Hillman, looking at performance-based funding through an equity lens, as this report does, feels like a “natural evolution” for policymakers and an opportunity to jumpstart a “growth process.”

“I’m so excited that the field is warming up to these conversations and having these conversations,” he said. “I don’t think a few years ago we would be talking about this … Metrics are socially constructed. They’re politically constructed. Metrics by themselves are not fair. There are people making choices about what metrics go into these models. [And] these models should be reflecting on the distribution of who benefits and who’s burdened by the formula.”

Sara Weissman can be reached at [email protected]

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