Performance Funding Policy Effects on Community College Outcomes: Are Short-Term Certificates on the Rise?

Abstract

Objective: Performance funding (PF) policies allocate a portion of state funding to colleges based on student outcomes. This study is the first to account for policy type and design differences, and explores the impact of performance funding on three levels of credential completions: short-term certificates, medium-term certificates, and associate’s degrees. Method: We create a panel dataset of 751 two-year colleges from years 1990 to 2013 using data from the Integrated Postsecondary Education Data System. We conduct a series of analyses using difference-in-differences with the inclusion of college- and state-level control variables. Results: We find that, on average, performance funding produces no significant changes in completions of any of the three credentials. Policy types characterized by a greater proportion of funding tied to the base budget, mission differentiation in performance metrics, inclusion of underrepresented student metrics, and longer periods of operating years produce an increase in short-term certificates, no significant change in medium-term certificates, and a decrease in associate’s degrees. Contributions: This study’s findings suggest that because awarding more short-term certificates is a relatively quick and cost-effective way to capture performance funds, colleges might be engaging in a path of least resistance by churning out short-term certificates and redirecting focus away from associate’s degrees, which is concerning given that short-term certificates generally offer limited labor market benefits compared to medium-term certificates and associate’s degrees. Our results also underscore the importance of policy designs in explaining differential impacts on credential completion.

Use of Quasi-Experimental Research Designs in Education Research: Growth, Promise, and Challenges

“…This boost in certificate production without concurrent increases in 2- and 4-year degrees raises concerns about the long-term impact of PBF policies since the returns for certificates are lower on average than those for associate’s or bachelor’s degrees (Belfield & Bailey, 2017). National DID analyses of multiple state PBF policies largely confirm null or negative findings from individual state studies for associate’s (Li & Kennedy, 2018; Tandberg et al, 2014) and bachelor’s (e.g., Tandberg & Hillman, 2014) degree production and an increase in short-term certificates (Li & Kennedy, 2018). One study found evidence that more recent PBF policies—those that tie performance funds to a college’s base funding rather than providing performance funds as an additional bonus—have a modest positive effect on degree production (Rutherford & Rabovsky, 2014).…”

Performance-Based Funding in American Higher Education: A Systematic Synthesis of the Intended and Unintended Consequences

“…Tandberg et al (2014) found that associate degree production following PBF adoption increased in six states, decreased in four states, and did not change in nine states. A more recent study with a similar methodological design focused on the effects of PBF policies on credential completions at community colleges and showed that PBF policies, on average, were unrelated to changes in credential completions (Li & Kennedy, 2018).…”

“…Several quasi-experimental studies have employed a DD regression approach and shown that PBF can lead to increases in the production of short-term certificates rather than associate degrees (Hillman et al, 2015, 2018; Hu, 2019; Li & Kennedy, 2018; Li & Ortagus, 2019). Hillman et al (2018) examined two of the most robust PBF-participating states, Tennessee and Ohio, and found that Tennessee community colleges responded to PBF by producing more certificates rather than longer-term associate or bachelor’s degrees.…”

“…STEM incentives in performance funding policies increased total bachelor degrees in STEM, and STEM degrees as percent of all degrees. Li and Kennedy (2018) Difference-in-differences with fixed effects using panel data for public 2-year institutions, 1990-2013.…”

The Financial Benefits and Burdens of Performance Funding in Higher Education

“…Performance funding–related research suggests that these incentive policies are marginally, if at all, effective in terms of improving the outcomes that are tied to funding. For example, little to no effect is observed for degree production or graduation rates for associate’s or bachelor’s degrees (Hillman, Tandberg, & Gross, 2014; Hillman et al, 2018; Hillman, Tandberg, & Fryar, 2015; Li & Kennedy, 2018; Rutherford & Rabovsky, 2014; Tandberg, Hillman, & Barakat, 2014; Tandberg & Hillman, 2014). However, some scholars find performance funding had led to increases in short-term certificates—credentials that are the simplest and fastest to produce (Hillman et al, 2018; Hillman et al, 2015; Li, 2018).…”