Investing in Equity: How do Performance-Based Funding Policies Impact Financial Resources at Minority Serving Institutions?

By: Nicholas Hillman and Daniel Corral

Department of Educational Leadership and Policy Analysis

University of Wisconsin, Madison

                     

State legislatures have increasingly turned to performance-based funding (PBF) as a way to align financial incentives with educational goals. Each state designs its model differently and in line with its own unique goals, but all tend to prioritize outputs like: degrees awarded; credit hours completed; retention rates; and even job placement rates.

Given what we know about racial inequalities in these outputs, we wanted to see how public Minority Serving Institutions (MSIs) fared under these new funding models*. We started by taking a close look at Tennessee, where the state allocates nearly all of its funds through a PBF formula. Predominantly white institutions have garnered the lion’s share of new money from the funding model, but the state’s sole public Historically Black university (Tennessee State University) has received nearly no new money despite seeing steady enrollment growth.

We wanted to see if this pattern held across other PBF states and we found, on average, it did.

It is difficult to disentangle the policy effect from other confounding factors, so we utilized a statistical technique that is both accepted by the field and is designed to help answer our questions. Our main finding was that overall state funding levels did not change significantly after adopting PBF policies. That is, PBF states neither invest nor divest at higher rates than other states. But when it comes to MSIs in PBF states, we see a different story. Our results show MSIs lost about $750 per FTE student, on average, when compared to MSIs in states that never adopted the policy. We interpret these results as exploratory and in need of closer examination, particularly in the states that invest the most in this funding model.

We also interpret our results as something to keep a close eye on for MSIs and other broad-access institutions serving racial and ethnic minoritized students. Using performance metrics that do not account for their unique missions and limited resources, these models might do little to reverse inequalities. For policymakers interested in mitigating inequalities and promoting civil rights, this study may motivate them to take a closer look at the distribution of their funding formulas. It may even point to alternative approaches to funding (e.g., equity-based funding or innovation grants), where policymakers might consider new ways to build institutional capacity to improve internal performance.

There is much work to be done on this topic. Future research may consider how educational outcomes and resources at specific MSIs are affected by these policies. We hope our study contributes to ongoing efforts to improve funding models and to consider issues of equity and fairness in that pursuit. Left uncorrected, these results suggest funding models have the potential to work against college completion goals if it turns out that MSIs truly are disadvantaged by these models. The answer to this question will vary from state to state, but regardless of the context we hope our study helps advance opportunities for the greatest number of our nation’s students of color and the colleges where they enroll.

*This study is part of a special issue in American Behavioral Scientist–edited by William G. Tierney and James Dean Ward—titled, “The role of state education policy in ensuring access, achievement, and attainment in higher education.” Please click here to review other studies in this volume looking closely at the state role in educational opportunity.