SQUEEZED: State support for higher education has stagnated in recent years, despite rising student enrollment. UNIVERSITY OF ARKANSAS - FAYETTEVILLE

In today’s Democrat-Gazette, Michael Wickline reports on Gov. Hutchinson’s endorsement of a proposed overhaul of funding for colleges and universities in Arkansas. The Higher Education Coordinating Board will consider the plan at its meeting this Friday, although a change of this magnitude will also require legislative approval and could not be implemented for some time.

The governor wants the state to shift to a 100 percent “outcomes-based funding formula” for higher education, meaning colleges and universities would receive state support based on metrics, such as the percentage of students completing a degree on time. The change could be a positive one — but only if it is implemented in the right way. As with K-12 education, making funding contingent on performance is potentially fraught.


The main argument for outcomes-based funding is that colleges and universities lose vast numbers of students between enrollment and graduation. Data from the Arkansas Department of Higher Education show that only 40 percent of a given cohort of students attending a four-year institution in Arkansas will graduate within six years. Only 20 percent of students at two-year schools complete within three years. Not only do many students leave college without a degree, they may be saddled with debt as a result —  and it will come as no surprise that lower-income students and other disadvantaged students are more likely to leave college without a degree than their better-off peers.

The Lumina Foundation, which supports outcomes-based funding, makes the case for outcome-based funding in this FAQ: “When public money flows to colleges and universities based primarily — or solely — on the numbers of students enrolled, institutions understandably focus on recruiting new students rather than on adequately supporting the students they have.”


At the moment, 90 percent of state funding for higher education in Arkansas is based on enrollment: The more students enrolled at an institution, the more money the school receives. The other 10 percent of state support is theoretically performance-based: If a school fails to meet certain performance thresholds for two years running, it loses this funding. However, Tara Smith, ADHE’s Senior Associate Director for Institutional Finance, told me that performance funding has never been cut off for an institution. 

The proposal that will be presented on Friday does away with the enrollment-based funding system entirely and trades it for a 100 percent outcomes-based model. All funding will be tied to metrics (such as degree completion rate) not enrollment. Smith provided the “framework” derived by an ADHE working group, but the crucial details will come later. If the Higher Education Coordinating Board endorses the proposal, legislation will have to be prepared for the 2017 session in order to make the change. (However, because of the timeline involved in the appropriations process, Smith said, the earliest the shift would go into effect is the 2018-19 school year.)


Dismal college completion rates need to rise, undoubtedly. But there are two reasons for skepticism about what the governor is proposing.

The first is the fact that Arkansas’s funding for higher education in general is too low. It hasn’t kept pace with inflation, even as the state’s flagship public university has been enrolling record numbers of students. When we spoke to UA-Fayetteville Chancellor Joseph Steinmetz this spring, he said the number one problem facing the school was its inability to provide adequate compensation for faculty and staff, leading to nascent retention problems. ADHE’s current funding formula determines what colleges and universities theoretically should be appropriated, but unlike with K-12 schools, the legislature is not required to actually fund schools at that level. The state provides UA-Fayetteville just 49 percent of what the formula says it should. That equates to higher tuition for students, which affects lower-income students disproportionately.

Hutchinson told reporters yesterday that he’d be looking into whether the outcomes-based model might require more money. But given his determination to seek yet another tax cut in 2017 — on top of regressive tax cuts in 2015 — it’s fair to think a big increase in overall higher ed funding is unlikely. Certainly, the incentive structure for colleges may be skewed — but an equally big part of the problem might be the state’s unwillingness to fund higher education adequately.

The second reason for skepticism is outlined in this blog post from the American Council on Education, titled “Will Performance-Based Funding Further Disadvantage Disadvantaged Students?” (I’m considering “performance-based” and “outcomes-based” synonymous.) The authors, who are both professors of education, write:


One of the most commonly cited unintended consequences of PBF [performance-based funding] is that resource-dependent colleges may have an incentive to “cream” admissions by enrolling students who are more likely to graduate, while curtailing admission of disadvantaged groups that are less likely to complete. Moreover, there are concerns that PBF could disproportionally penalize colleges that predominately serve students from disadvantaged backgrounds.

In other words, such a funding model may create a different set of perverse incentives, in which colleges have little interest in recruiting students that are more likely to negatively affect its “outcomes.” If schools are funded according to results, then schools might focus on attracting the sort of students more likely to deliver results — and, therefore, come to see low-income students, minority students, non-traditional students and others as a greater liability.

“Reports from the Community College Research Center explain that the colleges can minimize recruitment efforts at area high schools with large numbers of disadvantaged students, and reduce the number of developmental education or adult basic education course offerings,” the authors write, although they caution that “such undesirable institutional behaviors may be more of an impending threat than a reality at present.”

Smith, at ADHE, acknowledged that “that is a challenge … you do not want to have institutions begin raising standards [in order] to not admit students.” One of ADHE’s main goals, she said, is to close attainment gaps based on socioeconomics and race. But, she added, “there are ways to weight those very students and take that into account in those metrics, so it will incentivize the institutions to serve those students and maintain access.” But how those students will be weighted are among the many details that have yet to be determined.