Performance Funding Policy Effects on Community College Outcomes: Are Short-Term Certificates on the Rise?

Abstract

Objective: Performance funding (PF) policies allocate a portion of state funding to colleges based on student outcomes. This study is the first to account for policy type and design differences, and explores the impact of performance funding on three levels of credential completions: short-term certificates, medium-term certificates, and associate’s degrees. Method: We create a panel dataset of 751 two-year colleges from years 1990 to 2013 using data from the Integrated Postsecondary Education Data System. We conduct a series of analyses using difference-in-differences with the inclusion of college- and state-level control variables. Results: We find that, on average, performance funding produces no significant changes in completions of any of the three credentials. Policy types characterized by a greater proportion of funding tied to the base budget, mission differentiation in performance metrics, inclusion of underrepresented student metrics, and longer periods of operating years produce an increase in short-term certificates, no significant change in medium-term certificates, and a decrease in associate’s degrees. Contributions: This study’s findings suggest that because awarding more short-term certificates is a relatively quick and cost-effective way to capture performance funds, colleges might be engaging in a path of least resistance by churning out short-term certificates and redirecting focus away from associate’s degrees, which is concerning given that short-term certificates generally offer limited labor market benefits compared to medium-term certificates and associate’s degrees. Our results also underscore the importance of policy designs in explaining differential impacts on credential completion.