Performance-Based Funding for Higher Education

Economists are projecting that a growing proportion of jobs will require a college certificate or degree and, as a result, states are considering policies to increase college completion. One of these policies relates to how higher education is funded by the state. Typically, colleges receive state funding based on how many full-time equivalent students are enrolled at the beginning of the semester. That model provides incentives for colleges to enroll students—but not necessarily to help them graduate. Many states are reconsidering the enrollment-based funding model and instead are allocating money to colleges based on the number of students who complete courses and degrees.