Does Performance-Based Funding Affect Colleges’ Financial Priorities?

Abstract

State-level performance-based funding (PBF) policies are an increasingly common way to allocate funds to public colleges and universities. While a growing body of research has examined whether these policies are effective in improving student outcomes, little is known about how colleges respond to PBF policies. In this paper, we examine whether two-year and four-year colleges subject to PBF change their patterns and allocations of revenues, expenditures, and financial aid. We find limited evidence that colleges facing PBF receive different levels of revenue or reallocate some funds to different expenditure categories. Notably, colleges subject to PBF receive less Pell Grant revenue than colleges not subject to PBF, suggesting potential strategic behaviors targeting students from higher-income families.

Mitigating Unintended Impacts? The Effects of Premiums for Underserved Populations in Performance-Funding Policies for Higher Education

“…The performance-funding policy they examined also resulted in fewer minority students enrolled in public institutions subject to the policy. Similarly, Kelchen and Stedrak (2016) reported that at four-year institutions, Pell-Grant revenues per fulltime equivalent student (FTE) decreased under performance-funding programs, suggesting that institutions may have intentionally altered enrollment behaviors (by limiting access to lower income students) in response to performance funding.…”

“…Further, the low-income measure does not extend to years prior to 1997. To examine the issue of measurement, we conducted a robustness check of these models using total Pell Grant revenue (ln) from IPEDS similar to the approach taken by Kelchen and Stedrak (2016). These models (not shown here)…”

“…Despite growing advocacy for incorporating premiums for underserved students in performance-based funding models, previous research has not examined systematically the effects of these individual policy components on underserved students' access to college. This is surprising given emerging evidence that performance-funding programs can result in increased selectivity and decreased enrollment of students from traditionally underserved groups (Kelchen & Stedrak, 2016;Umbricht, Fernandez, & Ortagus, 2015). To address this void in the literature, this study examines how the inclusion of premiums for underserved students in performancefunding policies affects institutional selectivity and the share of enrollment of these student populations.…”

“…For instance, a study of performance funding in Indiana reported that some institutions increase selectivity when subject to performance funding (Umbricht, Fernandez, & Ortagus, 2015). Similarly, Kelchen and Stedrak (2016) found that institutions subject to performance funding receive less Pell Grant revenue than those not funded by this type of model. Another study examined how different groups of students generate funding for community colleges under a performance-funding model in Texas (McKinney & Hagedorn, 2017).…”

How to Create and Use State-Level Policy Data Sets in Education Research

“…As of 2017, 35 states connect at least a portion of their higher education appropriations to PBF (Hillman, Fryar, & Crespín-Trujillo, 2018), with additional states, such as California, either considering or transitioning to a PBF policy (Fain, 2018). Gándara and Rutherford (2018) 1993-2014 Difference-in-difference Underserved student enrollment Yes Kelchen and Stedrak (2016) 2003-2012 Multivariate regression Institutional finances No Li (2018) 2003-2014 Difference-in-difference STEM bachelor's degrees Yes Merit aid Doyle (2010Doyle ( ) 1984Doyle ( -2005 Multivariate regression State merit aid per FTE No Fitzpatrick and Jones (2016) 1990-2010 Multivariate regression In-state and out-of-state attendance and residential migration Yes Kramer, Ortagus, and Lacy (2018) 1988 Difference-in-difference Tuition and fee levels Yes School accountability Hanushek and Raymond (2005) 1992 Multivariate regression Math and reading scores No Springer (2008) 2002 Note. STEM = science, technology, engineering, and mathematics; FTE = full-time equivalent.…”