"Outcomes-based" funding is the term preferred by policy makers here in Texas, in describing a plan to reward colleges and universities according to graduates and completers of courses rather than enrollment alone. Certainly there are many labels and complex taxonomies for funding student success around the country, but they all share certain traits.
Dean Dad, in Inside Higher Ed., holds forth on the subject and points out a few items not discussed normally. Please read the entire piece. The headline above is also his. Well done, sir!
One Texas proposal (see this previous post for details) gives special treatment to success by students in STEM fields.
Here's Dean Dad's take:
Some formulae give ‘premiums’ for students from underrepresented groups, STEM majors, or other cohorts that the state wants to encourage. The idea is to incentivize colleges to do what they can to reach broader social goals.
This strikes me as more promising than a simple graduation rate, but still quite difficult to get right. Students choose majors; colleges don’t assign them. If the majors weren’t distributed in a way that resulted in a positive funding outcome, a rational college would redistribute its own internal funding to try to change that. Frustrate and turn away enough humanities majors, and your STEM percentage increases by default.
Another point he makes is also worthy of pursuit:
And the entire enterprise seems a bit silly when you compare it to other public services, like, say, firefighting. Should more effective fire departments get more funding than less effective fire departments? Or would that just make the less effective ones even worse? And how would we define “effective,” anyway? “There’s been a wave of arsonists in the city. Clearly, the fire department is loafing on the job. Let’s cut their funding!” Um...
Now, to expand on this concept, take police officers and nurses. Let's say there is a crime wave. Should we reward police departments for more arrests? Convictions? Think about that for a moment, given the realities of our criminal justice system. As for nurses, would they try harder to help patients get better if they knew their hospital would get more money? Anyone who thinks so doesn't know nurses very well.
Then there is the Big Elephant, discussed on every college campus:
…under a desperate or clueless local administration, it could easily result in not-subtle pressures to just pass students along, regardless of performance.
Dean Dad's final point is also telling:
Sometimes, poor performance can be a product of a lack of funding. When that’s the case, basing funding on performance ensures a death spiral. Which I sometimes think is the point.
Think of developmental education, for instance. It's no secret that many policy makers want the hard cases to go away—or at least be shunted elsewhere, such as into Adult Basic Education.