Idaho should embrace performance-based funding for higher education

Whether and where to attend college can be a life-changing decision with significant impacts on an individual's future job opportunities and potential debt liabilities. Students, parents, and policymakers all have a vested interest in ensuring the return on investment is worth the considerable expense. 

This is why there's a need for states to focus on performance-based funding formulas for higher education. States across the country currently differ on their approach to funding higher education institutions. Some formulas are based on enrollment numbers, and others have a minimum number that their funding cannot go below. In recent years, there has been a push towards using performance-based formulas.

In 2023, Texas and Tennessee decided to reward their institutions based on achieving performance metrics rather than supporting subpar outcomes. This means they are funded based on outcomes such as certificates, degrees, and credits earned. The aim of this is to prepare students for the workforce. Idaho’s higher education institutions are currently providing funding based on enrollment instead of outcomes. Some state lawmakers are looking to change that.

Idaho Representative Wendy Horman, the co-chair of the Joint Finance and Appropriations Committee (JFAC), stated earlier this year that using outcome-based funding means ^“rewarding people who are succeeding and improving and demonstrating growth.”

Representative Steven Miller also noted that colleges and universities are going “to have to relearn how to do business … they’re going to have to reshape, and if they don’t understand that they are going to suffer losses one way or another.”

He further explained, “A college or university’s ultimate goal should be to help students graduate at the lowest cost possible while still ensuring they enter the workforce and find the best opportunity. If the institutions want to do other things, they need to figure out how to finance those other things.”

There are three basic approaches that policymakers in the U.S. have taken for higher education funding formulas. The enrollment-based model looks at the headcount of students at the institution and budgets accordingly. There is usually a base number per student, and that number will fluctuate by year. The base-adjusted formula uses a mechanism to make sure that university funding doesn’t drop below a certain point or retain a minimum share of funding.

The performance-based model looks at certain outcomes and provides funding based on objectives that policymakers want the university to achieve. 32 states currently use some type of performance funding approach. Obviously, some formulas can mix multiple approaches, but for the most part, they can be separated into those subtypes. Idaho currently uses the enrollment-based approach. 

During the last 15 years, there has been an increased use of performance-based funding formulas across the country for higher education.

Taxpayers want to fund institutions that are effective. Some educational data can be subjective in the qualitative sense, but there are plenty of quantitative, objective, and measurable outcomes for higher education institutions.

There are different ways to implement a performance-based model, but a popular metric to consider is post-graduation job placements. While this data may be hard and time-consuming to find, this is a great marker for the public to gauge an institution’s effectiveness.

Budget writers can also reward schools with funding if they provide training for jobs in high-demand areas or in developing fields. A simple way to think about it is that the state must determine the true purpose of the institution and then incentivize its higher education institutions to meet that purpose. 

Overall, the national data shows that performance-based formulas make a positive impact on the job market and degree completions. Indiana is a great example of this. The Hoosier State initially started with 1% of higher education funding being allocated through outcome metrics, to eventually reach 6%.

During this time, there was a 22% degree completion rate for “high-impact degrees.” After adopting performance-based funding metrics, Florida’s four-year higher education graduation rate increased by 14.5% from the 2009-2013 period to the 2016-2020 period.

Competitive higher education institutions focused on meeting performance-based outcomes are what Idaho deserves. To ensure that taxpayers, parents, and students achieve a strong return for their considerable investment, the Gem State should use performance-based funding for higher education.

Other states across the nation have realized the benefits of a performance-based funding model, and Idaho should join them in promoting accountability, transparency, and efficiency for its higher education system.