Evaluating Impacts of Performance Funding Policies on Student Outcomes in Higher Education

Concerns about performance and cost efficiency have taken center stage in discussions about the funding and oversight of public universities in recent years. One of the primary manifestations of these concerns is the rise of performance funding policies, or policies that seek to directly link state appropriations to the outcomes institutions generate for students. Despite the popularity of these policies, relatively little systematic research examines their effect on student outcomes at public colleges and universities. We use data collected from the Integrated Postsecondary Education Data System (IPEDS) to analyze the effectiveness of performance funding policies as a mechanism for improving student graduation, persistence, and degree attainment in more than 500 postsecondary institutions in all fifty states over a span of 18 years. We find that current performance funding policies are not associated with higher levels of student performance and that these policies may in fact contribute to lower performance over a longer period of time. However, more recent policies linked to institutional base funding may produce some likelihood of long-term improvement and require additional research.