Association for Public Policy Analysis & Management

Low-income students and students of color are significantly less likely to graduate from college than their high-income and white peers (Bailey & Dynarski, 2011; Chetty, Friedman, Saez, Turner, & Yagan, 2017). Performance-based funding (PBF) polices, which tie state support for higher education institutions to performance on student outcomes, have proliferated over the last decade as one strategy to increase degree attainment rates. Some states have also designed these policies to address gaps in persistence and completion by race, age, and income by offering additional funding for graduating students from these groups. Currently, 37 states have enacted or approved funding models that allocate a portion of state higher education appropriations based on institutional performance, and more than half of those states consider equity when determining funding levels.

Policies that tie funding to positive outcomes for historically underrepresented students appear to have null or very small positive effects on the enrollment of underrepresented student groups (Gandara & Rutherford, 2018; Kelchen, 2018). PBF policies in Tennessee and Ohio, two early adopters of PBF policies that include equity provisions, also appear to have negative to no impact on overall bachelor’s and associate’s degree production (Hillman, Fryar & Crespin-Trujillo, 2018). However, we are aware of no studies to date that analyze whether equity-based performance premiums in PBF regimes increase persistence and completion of underrepresented students or reduce persistence and degree completion gaps between traditional and underrepresented student groups.

Using data from the Integrated Postsecondary Education Data System (IPEDS) and National Student Loan Database System (NSLDS), we examine these questions by focusing on policy changes in Ohio and Tennessee. Since the early 2010s, both states have tied 80-100 percent of all state appropriations to performance outcomes and reward public institutions more for increasing persistence and completion rates for adult, minority, and low-income students. By comparison, the share of state appropriations allocated via performance funding does not exceed 25 percent in other states.

We apply the synthetic control group method (SCGP) to investigate our research questions, whereby we compare student outcomes at public institutions in Ohio and Tennessee before versus after adoption of PBF with equity provisions to a weighted composite of other public institutions that best match the institutional characteristics of treated institutions. We find no evidence that completion gaps in Ohio or Tennessee narrowed after either state introduced PBF. For example, the total number of degrees and certificates awarded to both White and underrepresented minority students increased by 11-14 percent at public institutions in Tennessee after the passage of PBF. In Ohio, the number of associate degrees awarded to White students did not change after PBF adoption, while the number of associate degrees awarded to underrepresented minority students decreased by 19 percent. Our findings indicate that PBF policies with equity provisions increase persistence and completion for both traditional and non-traditional students but may exacerbate college attainment gaps in some contexts.