In his recent State of the Union address, President Obama said colleges can’t keep raising tuition without producing results. Performance-based funding is increasingly popular in higher education circles, especially formulas that tie payment to the number of students who complete degrees. But funding for higher education has long been tied to a different set of results: maximizing the number of paying students or building the most powerful alumni network in the legislature. That approach served some institutions well in the short term, but wasn’t always in the best interest of students.
Performance-based funding is beginning to help organize entire campuses around the goal of student success, but many state leaders still pay less attention to the responsibility of students and to their own roles in aligning state aid programs with graduation goals. These leaders should promote the same kinds of incentives for students that performance-based funding does for institutions.
Indiana and Tennessee are leaders among states that align performance-based policies for students and institutions. They provide incentives to colleges where high numbers of students graduate, and give students the incentives and support they need to do their part too. In Indiana, the state government measures graduation rates, the number of graduates, and the ratio of graduates to enrolled students. The Commission for Higher Education recently approved a new set of policies to tie funding to the number of students that reach set benchmarks on the way to graduation.
Indiana also changed state student aid policies by reforming the state’s 21st Century Scholars Program, which encourages low-income middle- and high-school students to maintain good behavior and good grades. In addition to helping ensure students are college-ready, the program provides more incentives for students to get through college. A new financial need test helps make the program more efficient by directing limited dollars where they make the biggest difference.
Both Indiana University at Kokomo and Ball State University established tuition incentives for on-time graduation. A pilot program at IU Kokomo provides discounts for students who complete 30 credit hours per year, stay enrolled, and make continuous progress. Over three years, the discounts amount to a full year’s tuition. Meanwhile, Ball State recently announced $500 scholarships for students who stay on track to graduate within four years. The university will also limit the number of credit hours required for graduation, reduce summer tuition by 20 percent, and encourage students to take online courses. Efforts to help more students graduate could mean a savings of $10,000 for some students. A similar effort in Texas gives students $1,000 if they complete bachelor’s degrees.
With the most aggressive outcomes-based funding model in the country, Tennessee now allocates 70 percent of all higher education funding based on results, especially student progress and completion. The state also made its biggest scholarship program available for summer attendance, but limited the total award to 120 credits. Summer scholarships enable students to finish faster and credit limits on aid give them a good reason to do so efficiently.
Students deserve—and the nation needs—this innovation, particularly with higher education budgets slashed, tuition rising at twice the rate of inflation, and student loan debt doubling over the last 15 years. A recent survey by Public Agenda found that the public believes a college education is more important than ever—but also more out of reach. And while Georgetown’s Center on Education and the Workforce says that almost two-thirds of jobs in America in the coming years will require some kind of post-secondary education, our current trajectory falls short by 3 million graduates.
If we establish innovative institutional and student performance incentives like those in Indiana and Tennessee, we should expect steep increases in the number of college graduates. If we don’t, we may see shrinking capacity in higher education at the expense of the nation’s economy and of many lower-income Americans’ dreams of a college education.
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