INDIANAPOLIS—In recent years, state policymakers, working with higher education leaders, have developed outcomes-based funding policies focused on increasing student academic success and better serving students of color and students from low-income families. In months ahead, Lumina Foundation will release a series of papers, many written by new voices in the field, that offer insights into how states and their public institutions have implemented these new funding models to improve upon decades-old performance- and enrollment-based funding approaches.

Numerous independent research studies have found evidence that funding models with financial incentives for colleges and universities to help students complete their programs of study result in better pathways and supports for students. The need for finance systems oriented around improving student outcomes is urgent, especially for ensuring more equitable outcomes for students from all racial and ethnic backgrounds. Only 20 percent to 28 percent of blacks, Hispanics and Native Americans have earned college degrees, according to Census figures. In comparison, nearly 60 percent of Asian Americans and 44 percent of whites have earned at least an associate degree.

Lumina believes thoughtfully designed approaches to public financing must prioritize both college access and the imperative of increasing the share of working-age Americans with high-quality degrees and other credentials to 60 percent by 2025, especially among racial and ethnic minorities. Tennessee became the first state to adopt a rigorous outcomes-based funding model in 2010. As a result, the annual percentage increase in bachelor’s degrees awarded by colleges and universities there rose by 40 percent, from 2.5 percent yearly growth in 2010 to 3.5 percent from 2011-14. And during the same period Tennessee also experienced a 125 percent jump in the growth rate of associate degrees awarded, from an annual increase of 2.8 percent statewide to 6.3 percent from 2011-14.

“The investments that states make in higher education should move more students from all backgrounds toward postsecondary completion and should financially reward institutions that can show they are doing well by students,” said Jamie Merisotis, president and CEO of Lumina Foundation. “Emerging evidence supports the idea that, when paired with effective, student-centered practices, outcomes-based funding can boost the number of American graduates. Lumina supports the adoption of funding models that promote increased educational attainment, result in fairer educational outcomes for students of color, and promote innovation in academic delivery.”

The Lumina paper series begins by explaining how outcomes-based funding is an outgrowth of earlier higher education finance models. Another paper illustrates how funding traditionally has been viewed from an institutionally focused perspective, and it frames the need for stronger emphases on supporting college access and student completion. This requires changes in institutional climate and behavior, and another paper sets forth the case for engaging college faculty and administrators early in the process to improve the odds of successful implementation. A related graphic represents how outcomes-based funding has changed higher education and where this funding model can go in the future.

The papers feature findings from leading higher education researchers and thought leaders, and they provide institutional, state, and national perspectives. The 13 papers, all of which will be released in coming months, focus on four areas—providing an overview of outcomes-based funding, sharing metrics that state policymakers can use to gauge the effectiveness of public investments, promoting the potential results of offering students financial incentives to complete their studies on time, and showcasing ways in which institutions are responding by aligning financial resources to better support students as they navigate their paths to completion.

Outcomes-Based Funding Overview

States Policy Metrics and Outcomes-Based Funding

The Relationship of Student Incentives to Outcomes-Based Funding

  • “Aligning incentives in postsecondary finance,” by Nate Johnson, founder and principal consultant, Postsecondary Analytics, LLC
  • “Connecting state and institutional finance policies for improved outcomes,” by Steve Boilard, executive director, Center for California Studies, Sacramento State University

Institutional Academic and Financial Responses to Outcomes-Based Funding

  • “Leveraging outcomes-based funding policies at the institutional level,” by Jose Cruz, provost and vice president for academic affairs, California State University
  • “Outcomes-based funding and responsibility center management: Combining the best of state and institutional budget models to achieve shared goals,” by Linda Kosten, associate provost of planning, budget and analysis, University of Denver
  • “Using real-time labor market information to achieve better labor market outcomes,” by John Dorrer, program director, Building Economic Opportunity Group, Jobs for the Future

About Lumina Foundation: Lumina Foundation is an independent, private foundation in Indianapolis that is committed to making opportunities for learning beyond high school available to all. We envision a system that is easy to navigate, delivers fair results, and meets the nation’s need for talent through a broad range of credentials. Our goal is to prepare people for informed citizenship and for success in a global economy.

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