Suela Cela is the Policy Director, College and Career Pathways, for ExcelinEd.
What if states rewarded schools and colleges not just for student enrollment, but for student success—across the entire education-to-career landscape?
In most states, success in K-12 is currently measured by high school graduation–simply ensuring the student crosses the finish line. Similarly, in states with existing postsecondary performance measures, community college or university success is measured by persistence (did the student continue) or completion (did the student graduate) rates. A more meaningful measure, and one that states have not yet tackled, is incentivizing student transition successfully to the next step.
Under performance funding, a portion of an educational institution’s annual budget depends on student outcomes—for example, within six months after completing a community college program, are students employed in a job that pays at least 80% of the state’s median wage, enrolled in a four-year college with a successful first semester or enlisted in the military?
This differs from the traditional seat-time model, where funding is solely based on the number of students enrolled in courses. Performance funding is also called outcomes-based or results-based funding.
Performance funding shifts the focus of state policymakers from inputs to strategies that improve student success.
To improve student success, a performance funding program needs two critical components.
First, a well-designed performance funding model encourages schools and colleges to prioritize what truly matters: helping students transition successfully to their next step, whether that’s higher education, career training, military service or the workforce. This rewards actual student success and incentivizes direct engagement and support beyond program completion or graduation. Indeed, by breaking down institutional silos and fostering collaboration across education and workforce systems, performance funding can create a smoother, more effective transition for students.
Second, performance funding must offer a reward that is large enough to encourage the changes needed for improved student outcomes. That means at least 10 percent of funding. Also, success with higher-needs students must earn substantially greater rewards. Bigger bonuses recognizes that these academically at-risk students—students with a specific learning disability, like dyslexia, English learners and students from low-income families—can achieve at the same level as other students when provided the additional supports they may need to succeed.
By aligning incentives with actual student success, states can create a stronger education system based on data and outcomes. Here’s what that could look like at each stage of the education continuum.
Earning a high school diploma is just the beginning – true success comes from a seamless transition to college, career, or military service. States can incentivize schools and districts that actively support students who make strong postsecondary transitions within six months of graduation by:
Districts can earn higher bonuses by achieving these outcomes with low-income students, English learners or students with disabilities.
Community colleges are critical access points for students seeking workforce credentials or a pathway to a four-year degree. To strengthen outcomes, performance funding can reward institutions for successful student transitions beyond community college and when students:
Community colleges can earn higher bonuses when they achieve these outcomes with low-income students, returning adult learners (25+) or students who started academically behind.
Finally, a four-year degree should lead to meaningful career opportunities. A performance funding system can encourage institutions to focus on post-graduation success by incentivizing:
Four-year colleges can earn higher incentives with low-income students, returning adult learners (25+) and those who started academically behind.
Right now, no state has fully implemented a performance funding system that provides substantial, interconnected incentives across K-12, community colleges and four-year institutions. However, some states are leading the way by adopting strong components of a well-designed performance funding model.
For example, Tennessee and Texas have adopted performance funding for K-12 schools. The amount of funding offered to schools is meaningful, and it is substantially more for higher-need students. The outcomes that can earn bonuses are college, career or military readiness, which is a step short of recognizing actual success after graduation.
Also in Texas, 100 percent of funding for the state’s technical colleges is based on the wages earned by their graduates. Texas recently linked a substantial portion of state funding for community colleges to student outcomes. On the positive side, the amount of performance funding is meaningful, with a significant boost for low-income students, adult learners and those who are starting behind. Degrees in high-demand fields are rewarded at a higher level. However, with the exception of transferring to a four-year college, the outcomes used occur during enrollment. The next step is to reward post-graduation success.
Kentucky has allocated a meaningful portion of its higher education funding based on degree completion in high-demand fields, with additional incentives for degrees and credentials earned by low-income, adult learners and underprepared students. However, the current outcomes framework could be strengthened with the addition of post-graduation success outcomes.
Leading states that have adopted this approach give us a roadmap for potential success that includes:
No state has yet implemented a fully integrated performance funding model that spans K-12, community colleges and four-year institutions—but we hope that will change in the coming years. The opportunity to create an outcomes-driven education system that rewards institutions for student success, not just enrollment, has never been greater.
State leaders, education policymakers and advocacy organizations can step forward to pioneer this effort together. By aligning funding with student outcomes, we can build an education system that ensures more students graduate prepared for real-world success—whether in college, the workforce or military service—by incentivizing that success across the education system.
