Looking Inside the Black Box of Performance Funding for Higher Education: Policy Instruments, Organizational Obstacles, and Intended and Unintended Impacts

For several decades, policymakers have been concerned about increasing the efficiency and effectiveness of postsecondary institutions. In recent years, performance funding—which directly connects state funding to an institution's performance on indicators such as student persistence, credit accrual, and college completion—has become a particularly attractive way of pursuing better college outcomes. But even as states have made an enormous investment in performance funding, troubling questions have been raised about whether performance funding has the effects intended and whether it also produces substantial negative side effects in the form of restrictions in access for underrepresented students and weakening of academic standards. This paper addresses these troubling questions by drawing on data richer than heretofore available. In addition to drawing on the existing body of research on performance funding, it reports data from a study of the implementation of performance funding in three leading states (Indiana, Ohio, and Tennessee) and its impacts on three universities and three community colleges in each state.