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An Increasingly Popular Way To Fund Universities Makes No Sense, Report Says

CREDIT: SHUTTERSTOCK
CREDIT: SHUTTERSTOCK

Many public institutions of higher education are funded through the outcomes they produce for students, but does this funding model actually work for students? A new report from The Century Foundation says the answer is “No,” especially for disadvantaged students.

Universities and colleges’ funding often hinges on factors such as graduation rates, delays in graduation, and how disadvantaged students are faring — which sounds like a good idea in theory, but which actually does not improve quality of education for students in practice. Research shows that states using these models are generally not outperforming other states. These states often see degrees decrease or they don’t outperform other states in any statistically significant way. The other unfortunate outcome of this model is that some public universities responded to accountability measures by enrolling fewer low-income students.

Performance-based funding for public colleges and universities took off in full force in 2010, when states were still feeling the effects of the financial crisis. In 2010, only 14 states had performance-based funding models, the report shows, but by 2013, there were 35. As of July 2015, 32 states had some kind of performance-based funding in place, according to the National Conference of State Legislatures.

But in many ways, this model only resulted in making colleges and universities with fewer resources worse off than they were before. By asking these institutions to meet certain standards without providing the resources to ensure they could meet those standards, the funding model only made these financial inequities in higher education worse. The Century Foundation paper suggests a need-based funding model instead, so that colleges serving the most disadvantaged and underrepresented student populations may receive more resources, since those are the institutions where college completion rates are lower.

CREDIT: The Century Foundation
CREDIT: The Century Foundation

The way states chose to fund to public universities is a big deal because since 2008, students and families are taking on more significant shares of educational costs at public institutions of higher education — 10 percentage points on average, according to a report from the Delta Cost Project released earlier this year. In 2008, tuition covered 50.5 percent of educational costs at public research universities compared to 62.4 percent in 2012. For community colleges, that share increased from 30.3 percent to 37.3 percent.

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Although states are gradually beginning to spend more money on higher education, in most states, it’s still less than public universities received before the recession. As many as 45 states spent less per student in the 2015–16 school year than before the recession, according to the Center on Budget and Policy Priorities. In the meantime, tuition has increased 33 percent at public four-year institutions since the 2007–2008 school year.

It’s no wonder, then, that there is an influx of students attending community colleges. Given the fact that community colleges serve low-income students, they couldn’t raise their prices to the degree that other institutions of higher education could. But in turn, community colleges saved money through spending less on education — $531 less on average than in 2008 — and relying more on part-time faculty and more online classes.

The evidence that public colleges are asking students to shoulder more of the cost of education, that states aren’t increasing funding to pre-recession levels yet, and that community colleges — the last refuge of low-income, disadvantaged students — are spending less on education may bolster the argument that states need to adopt a need-based funding approach. Students at highly selective flagship public universities are generally already better positioned to succeed, but the students attending selective universities and community colleges are the students most in need of resources in order to graduate, the report argues.