An Examination of the (Un)Intended Consequences of Performance Funding in Higher Education

Abstract

Previous studies have shown that state performance funding policies do not increase baccalaureate degree production, but higher education scholarship lacks a rigorous, quantitative analysis of the unintended consequences of performance funding. In this article, we use difference-in-differences estimation with fixed effects to evaluate performance funding in Indiana. We find that performance funding did not increase the number of graduates and instead led to declining admission rates and increased selectivity at Indiana’s public universities. When compared with surrounding states, we find limited evidence that the effects of performance funding could disproportionately limit college access for Indiana’s low-income and minority applicants.