Outcomes-based funding has experienced its fair share of critiques, but proper policy design focused on student success in the workforce can help institutions unlock more funding and higher completion rates—and push graduating students into higher wages.
That’s according to a new whitepaper from The Foundation for Research on Equal Opportunity, a nonpartisan think tank that studied the effectiveness of outcomes-based funding models across different state legislatures and its institutions over the past two decades.
“At a time when Americans are losing trust in the value of college, policymakers should remember that labor market success is what most students say they want from their college experience,” the paper reads.
Tried in some capacity since the 1970s, outcomes-based funding, also known as “OBF,” is a state allocation model that rewards its public institutions based on a set of predetermined, quantifiable objectives. States that have implemented it and failed to see any results applied it inconsistently, based it off the wrong metric or didn’t allocate enough funding to the model for it to strongly motivate institutions, the paper suggests.
“Poorly designed or lazily implemented OBF systems usually do not work, as ample research on the subject has demonstrated. State policymakers must avoid falling into the traps that have bedeviled half-baked OBF schemes.”
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Researchers highlighted Texas State Technical College, a two-year vocational school at which at least half the students earn low income or are part-time. The institution relies strictly on outcomes-based funding and earns its dollars on a single metric: student post-enrollment earnings. In the eight years after it adopted the policy in 2014, students’ median wages improved by 45%, thus increasing its state appropriations by 63%. Graduation rates also increased.
The think-tank argues that the competitive performance metric spurred the institution to transform its academic programming to more competitively align with regional labor market needs.
“Academic programs have transformed into business units,” wrote an anonymous college representative in the whitepaper. “We’ve built a culture of agile, data-driven analysis, and each business unit now tracks its performance in relation to our common objective using a real-time dashboard of key performance indicators.”
However, policymakers interested in shaking up their allocation models should stay away from a one-size-fits all approach, the white paper concedes. Rather, they must begin by defining each institution’s strategic mission. While some schools may thrive when relying on outcomes-based funding for the bulk of their allocations, other institutions require stable funding, some reports contend.
Regardless of an institution’s mix of funding policies, the percentage allocated to its outcomes-based funding formula should focus on the primary consideration of most institutions of higher learning: to help students secure a well-paying career and livelihood.
“An institution with decent earnings outcomes for graduates but a high dropout rate should be held accountable for dropouts’ outcomes as well,” the report urged. “Similarly, an institution that enrolls students who want to build skills without seeking a degree should enjoy rewards for those students’ outcomes as well.”
Policymakers interested in implementing a more effective form of outcomes-based funding should read the foundation’s five recommendations here.
