Systemic reforms. Significant results. More college graduates.

Best Practices

Performance Funding
Indiana’s performance-funding formula has evolved since 2003 to prioritize overall degree
completion, on-time completion, the success of at-risk students, and the production of credentials
that support Indiana’s economy. The current performance metrics fall into three main categories:
completion, progress, and productivity. (1) The completion metrics include overall degree
completion, degrees earned by low-income students, and high-impact degrees in STEM-related
fields that are aligned to state needs. (2) The progress metrics include remediation success and
persistence incentives as students successfully pass key gateway college-level courses and reach set
credit completion milestones. (3) The productivity metrics reward increases in on-time graduation
rates and improvements on a metric defined by each college. Indiana allocated 5 percent (about $61
million annually) of overall state support for institutions to performance funding in the 2011-13
biennial budget. It is anticipated that Indiana will increase the percentage of performance dollars to 6
percent and 7 percent in 2014 and 2015.

Ohio has used performance funding since 2008, and this year the state implemented changes to
strengthen it. Governor John Kasich and the Ohio Higher Education Funding Commission have tied
100 percent of state appropriations to student progress and success, thus ending all allocations
based on enrollment. Under the new legislation, funding is equally portioned between course and
degree completions with special weighting for the progress and success of at-risk and science,
technology, engineering, and math (STEM) students. Starting in 2015, community colleges will no
longer receive state support based on student headcounts and will shift all funding to a mixture of
course completions, degree and certificate attainment, and identified success points, one of them
being the successful transfer of students to universities. Community colleges will also be studying
at-risk student factors, which will also receive additional weighting in the formula as an incentive
for their success. So-called stop-loss protections against funding cuts for inadequate institutional
performance will be removed for universities and branch campuses in 2015 and for community
colleges the same year, thereby ensuring that high-performing universities and community colleges
reap the full financial benefits of their successful reforms.

Tennessee has implemented the most aggressive performance-based funding model — with
100 percent of state higher education funding allocation. The state introduced performance
funding with the Complete College Tennessee Act of 2010. Performance measures include student
retention, degree attainment, and completion of remedial courses. Tennessee weights adults older
than 25 and low-income students more heavily, and funding formulas are adjusted to address
differences between community colleges and universities. In addition Tennessee provides rewards
to institutions on the basis of the number of students who complete 24 credits, 48 credits, and 72

In 2000, Texas launched its “Closing the Gaps by 2015” initiative, which sets goals in four areas:
participation (or enrollment); student success as measured by the completion of certificates,
associate degrees, and baccalaureates; institutional excellence; and growth in federal research
dollars coming to Texas institutions. In addition, the initiative was preceded by several years of a
performance-funding component to its allocation model that rewards institutions for increasing the
numbers of degrees awarded.

Sources: Center for American Progress, Performance-Based Funding of Higher Education: A Detailed
Look at Best Practices in Six States, 2012; National Conference of State Legislatures, “Performance-
Based Funding for Higher Education,” State Activity Details,