Questioning the impact of performance-based funding on SEM

by Betty Huff, Senior AACRAO Consultant

Performance-based funding, a 21st Century outcome of declining higher education resources and increased public and governmental accountability, is beginning to attract the attention of researchers as well as strategists.  Recent articles appearing in the Chronicle of Higher Education (April 22, 2016) and the Journal of Education Finance (Winter 2016) raise questions about the negative impact on needy students and those students less academically prepared for the rigor of post-secondary enrollment.

Tenets of Performance-Based Funding (PBF)

Performance-based funding advocates the use of outcomes, rather than enrollments, and utilizes unique weighting structures for defined outcomes to assess institutional and student success.  According to a July 2015 report from the National Conference of State Legislatures (NCSL), 32 states had some degree of performance-based funding for four-year and/or community colleges, and five states were in transition. Performance-based funding is not a small experiment among a few states, but an emerging model for all public higher education funding.

There are several positives for this type of funding:

  • It forces the reallocation of funds for institutions that are performing well and challenges all institutions to do better. 
  • It is a flexible, not status-quo, model that accommodates future shifts in institutional mission and productively emphasis. 
  • It allows for allocating funds to programs that are meeting the needs and demands of students while allowing the definition of productivity that may have been previously unaccounted for, to be credited to the institution such as transfer rather than cohort graduation rates and part-time student success.

There may, however, be some inherent ethical and practical issues with performance-based funding that will need to be researched and monitored to insure that a cadre of students are not lost in this transition.

Early Concerns by AACRAO Professionals

Tennessee was one of the first adopters of performance-based funding.  In January 2010, Tennessee passed the “Complete College Tennessee Act” in which the legislature called for reforms in several areas including student transfer, research collaboration, and a new funding formula policy.  It “made a place at the table” for institutions that had significant numbers of transfer and adult students rather than focusing on the traditional full-time freshman cohort and rewarded milestones of academic progress in addition to time-to-degree.  But AACRAO professionals in the state were concerned about the negative impact of recruiting and enrolling students who did not have characteristics for four- to six-year graduation rates.

This ethical dilemma for recruitment and enrollment practices was presented at the 2014 AACRAO Strategic Enrollment Conference in Los Angeles. Dr. Robert Hodum, Tennessee Tech University, and Betty Huff, University of Memphis, in their presentation on Tennessee’s implementation of performance-based funding wondered if enrollment management pressures would move the focus from one of access for students with the potential to succeed to one of predicted success, creating an environment of admitting only students who would benefit the funding formula and leaving at-risk students to seek other options.  At the time of the presentation, the formula was in its first year of implementation so all the concerns were speculative rather than experience-based.

Where are the discussions now?

Robert Kelchen and Luke Stedrack, faculty at Seton Hall University, in an article entitled “Does Performance-Based Funding Affect Colleges’ Financial Priorities?” indicated some concern that schools could be enrolling fewer lower-income students in response to PBF. In a recent review of the article on the NASFAA website, it was noted that the authors expressed the need for further research before cause and effect could be assumed.

According to Mark Kantrowitz, publisher and vice president for strategy at, in a recent article in the Chronicle of Higher Education, there “is a tension between college access and success” and the adoption of more selective admissions policies is the most effective tool for improving graduation rates.

Remaining true to our principles

The changing landscape of budgeting models, outcomes assessment, and financial aid modeling is a challenge to all who practice Strategic Enrollment Management.  Remaining true to the institutional mission, the financing of the enterprise, and the accessibility to higher education for all who desire an advanced education will continue to be a challenge to the enrollment management professional.


For an in-depth discussion about SEM solutions on your campus, explore AACRAO Consulting.