Performance Funding and Higher Education Inequality

Abstract

Performance funding uses financial incentives to motivate institutions to improve student outcomes and college completion. Perceiving this funding strategy as a helpful mechanism to stimulate better higher education outcomes, many states adopted the policy. Empirical evidence suggests that many of these models have done little to improve student success overall. Further, research indicates that some institutions inflate graduation rates and selectively admit students in order to obtain more state funding. Institutions that have a sizable population of underrepresented students may receive inadequate funding due to their low graduation rates. This chapter reviews the history of performance management reform, explains how it spurs the popularity of performance funding in higher education, analyzes the policy's downfalls, explores the policy's potential contribution to the intensifying higher education inequality, and discusses solutions to overcome the policy's challenges.