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Disparities in Performance-Based Funding Outcomes in Tennessee and Ohio

The utilization of performance-based funding, a strategy where public colleges receive financial support based on specific student success metrics—such as graduation rates—has revealed unequal benefits across different demographic groups in Tennessee and Ohio. This is highlighted in a recent comprehensive analysis of U.S. Department of Education data comparing public colleges and universities from these states between 2004 and 2015.

The study evaluated institutions in Ohio and Tennessee against counterparts in states without performance-based funding to understand the impacts on student outcomes. Although there were instances where Black, Hispanic, Native American, and Alaska Native students earned more certificates along with associate and bachelor’s degrees, the achievement gap compared to their white and Asian peers persisted and, in some cases, expanded. This trend was particularly evident for bachelor’s degrees in Ohio and certificates in Tennessee.

Distinguishing itself from traditional funding approaches, which often focus on enrollment numbers, performance-based funding ties state financial support primarily to graduation outcomes. Consequently, both Tennessee and Ohio serve as pivotal case studies, having adopted this model for an extended period, with nearly all state funding linked to performance benchmarks. Additional funds are designated in both states for credentials awarded to historically underrepresented groups in higher education, including low-income and adult learners. Notably, Ohio explicitly allocates extra funding for credentials obtained by racial and ethnic minority students. Despite these provisions, by 2015, the disparities in credential attainment remained stagnant or worsened in both states.

The analysis concentrated on the gaps between white and Asian students and their Black, Hispanic, Native American, and Alaska Native peers. Findings revealed no significant changes in the associate degrees awarded across either state. Tennessee’s performance-based funding system did increase associate degrees for white and Asian students but did not positively affect the underrepresented groups. In Ohio, while the funding approach did not influence the number of associate degrees awarded to white and Asian students, it negatively impacted their minority counterparts’ attainment. Overall, there was no evidence that performance-based funding helped narrow racial gaps in college completion in either state.

The Implications of Performance-Based Funding

Recognized as a prevalent policy, performance-based funding was adopted by 32 states as of 2020. The underlying belief that this funding mechanism would incentivize colleges to address educational inequities, however, has been challenged by the findings of this study. Instead of bridging achievement gaps, performance-based funding has appeared to exacerbate them, countering its intended purpose.

Even as it raises the accountability stakes for colleges to enhance their performance metrics, performance-based funding does not necessarily provide the requisite resources for institutions to succeed. Additionally, it has the potential to deepen funding disparities across institutions, often disadvantaging minority-serving and less affluent colleges when compared to prominent public universities.

Future Considerations

In light of these findings, improving graduation rates for underrepresented groups poses a considerable challenge without increased financial support directed at those institutions. Even with additional funding, it may prove insufficient to rectify existing inequities.

This research underscores the essential need for ongoing assessment of performance-based funding policies. It is imperative to evaluate whether these initiatives are fulfilling their intended objectives or inadvertently worsening disparities in educational outcomes.

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