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Research Examines Funding Colleges Based on Performance

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American University School of Public Affairs Assistant Professor Nathan Favero has coauthored a paper with Amanda Rutherford of Indiana University that calls into question the merit of funding colleges based on performance. The researchers suggest there is almost no evidence that the performance-based funding policies work and they may indeed reinforce existing disparities among schools. The study will appear in an upcoming issue of Research in Higher Education.

Performance-based funding policies have become increasingly popular among states -- 32 in the U.S. have such policies, according to the research. By linking money for public higher education to measures of performance, schools with higher graduation rates are rewarded and institutions where students struggle receive less. As a result, schools that are less well-positioned to succeed on these performance metrics -- and may benefit most from additional resources -- miss out on the funding that other schools can receive.

“I’m really concerned about the equity implications of these types of funding policies,” said Favero, whose research explored the negative unintended consequences. “With this paper, the hope is to push people to think about this more. There is good reason to believe that these policies create winners and losers.”

The researchers find preliminary evidence that the winners are well-established colleges and universities while lower-tier universities and historically black universities are actually harmed by the adoption of aggressive performance-based funding policies.
Favero ran the empirical models based on previous research and higher education data sets identified by Rutherford. The analysis led the researchers to suggest policymakers stop using traditional performance-based funding policies and instead reward growth in performance so that lower-tier schools have a reasonable chance to compete against the higher-tier schools.

“I think what we are doing is pretty novel, which is shocking to me,” said Favero, noting that these policies largely have been dismissed at the K-12 level but continue to be popular in higher education. “People like these policies because there is an intuitive appeal to reward positive behavior, but it is not easy to improve the quality of universities even if people have motivation. I’m not sure these policies will do a lot to fix it and I worry it’s going to actually deprive them of resources.”

A better approach to helping students succeed, suggests Favero, may be to invest more in college and university personnel. If states are going to use performance funding, rewarding changes in performance would be a fairer model.

“That way everyone really is on more of a level playing field,” said Favero.