Gaming the system to increase outcomes?
I haven't seen much evidence of it around here. Lower state financial support for universities seems to have a bigger impact on behavior: we act more like private institutions with large state grants. By Robert Kelchen and Luke J. Stedrak, writing in The Conversation.
Performance funding, the idea of tying funding to outcomes instead of enrollment, was first adopted in Tennessee in 1979. It spread across the country in waves in the 1990s and 2000s, with some states dropping and adding programs as state budget conditions and political winds changed. In this decade, several states have implemented systems tying most or all of state funding to outcomes.
By basing funding on outcomes such as course completions and the number of degrees awarded, PBF has become a politically popular strategy to improve student outcomes. It has received strong support from the Bill and Melinda Gates and Lumina Foundations - two big players in the higher education landscape.
However, the best available evidence suggests that PBF systems generally do not move the needle on degree completions in any substantial way....
While there is no significant evidence of impact, there have been many unintended consequences of this policy.
There is a growing body of evidence, for example, that shows that colleges may be trying to change both their student body and their academic standards in order to meet the state’s performance goals as well as their own priorities.
A research team at Teachers College who interviewed administrators in three states with “high-stakes” PBF systems (Indiana, Ohio and Tennessee) found that colleges facing PBF were both becoming more selective in accepting students and lowering academic standards among current students in an effort to have more students graduate.
A new study by Mark Umbricht and Frank Fernandez at Penn State and Justin Ortagus at University of Florida used data on incoming students to show that Indiana colleges increased selectivity in response to PBF.
They estimated that Indiana colleges lowered admissions rates by nearly 10 percent and increased ACT scores by nearly a full point compared to similar colleges in other states.
In our research, published recently in the Journal of Education Finance, we examined whether public two-year and four-year colleges nationwide changed how they either received or spent money in response to performance funding systems.
We found that colleges generally did not change spending on instruction or research, but they did see significantly less revenue from federal Pell Grants that are primarily given to students with family incomes below US$60,000 per year, suggesting fewer low-income students enrolled. We estimated a statistically significant decline in Pell revenue of about 2 percent at both two-year and four-year colleges.
We also found that four-year colleges offered more institutional grant aid, potentially in the form of merit-based scholarships to attract higher-income students with a greater likelihood of success.