Washington (April 1, 2021) – While more than 30 states have adopted some form of outcomes-based funding for public colleges and universities, extreme disparities remain in institutional funding and college student success. Metrics that could drive the enrollment and graduation of students of color and students from low-income backgrounds are often optional, missing, or underfunded in state funding formulas for public higher education, according to a new report from The Education Trust.

The report – Re-Imagining Outcomes-Based Funding – analyzes the degree to which statewide higher education funding formulas support college access and success for students of color and students from low-income backgrounds and offers recommendations for designing, or redesigning, these formulas to advance racial, ethnic, and economic equity.

In theory, outcomes-based funding policies are meant to create incentives for public two-year and four-year colleges to improve student outcomes, such as graduation and employment. But in practice, they often do more harm than good, reinforcing inequities between institutions and deepening racial and economic divides.

“Outcomes-based funding for higher education looks like it’s here to stay, so we have to help states get it right,” said Kayla C. Elliott, Ph.D., interim director of higher education policy at The Education Trust. “Especially now, as COVID-19 has exacerbated racial and economic disparities, states should be meaningfully rewarding public colleges and universities for enrolling and graduating underrepresented students of color and students from low-income backgrounds. For the most part, that’s not what’s happening. And while colleges have a responsibility to ensure safe and supportive learning environments, only four states are measuring and rewarding campus climate in some way.”

The report identifies five equity-focused metrics states should use in outcomes-based funding policies and offers 10 steps for design, including making equity metrics mandatory, penalizing colleges that game the system by reducing access for certain groups of students, and investing a significant amount of state funds in the equity-focused formula.

“Ed Trust is calling on states to embrace funding models that advance higher education equity, and I couldn’t agree more,” said Ted Mitchell, Ph.D., president of the American Council on Education, an association of more than 1,700 colleges and universities that educate two-thirds of U.S. college students. “This is indeed the time for state leaders to act boldly to bring us out of the pandemic better than before. With the right incentives and sufficient support, all public colleges can fulfill their promise to be effective engines of upward mobility for students of color and students from low-income backgrounds.”

Accompanying Re-Imagining Outcomes-Based Funding is a handbook for state leaders and higher education equity advocates with scenarios for improving outcomes-based funding formulas. The handbook draws on examples of opportunities for improvement in Illinois, Ohio, and Tennessee.

“Tennessee has been a leader in education policy innovation and implementation for more than a decade in a quest to give more Tennesseans access to the educational and economic opportunities necessary to enjoy choice-filled lives,” said Russ Wigginton, Ph.D., chief postsecondary impact officer for the State Collaborative on Reforming Education (SCORE). “Tennessee can build on its promising policy foundation by tackling the big challenges that remain: eliminating racial inequity in postsecondary opportunity, helping all students attain their credentials or degrees, and setting more Tennesseans on a path to economic mobility.”

The full report is available at edtrust.org/ReimagineOBF.

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