Incentivizing Equity? The Effects of Performance-Based Funding on Race-Based Gaps in College Completion

ABSTRACT Performance-based funding models for higher education, which tie state support for institutions to performance on student outcomes, have proliferated in recent decades. Some states now tie most of their higher education appropriations to completion outcomes and include bonus payments for historically underrepresented groups to address equity gaps in postsecondary attainment. Using a Synthetic Control Method research design, we examine the heterogenous impact of these funding regimes in Tennessee and Ohio on completion outcomes for racially minoritized students and students from historically overrepresented racial groups. Across both states, we generally estimate null or negative effects on credentials conferred to racially minoritized students and null or positive effects on credentials conferred to students from historically overrepresented racial groups. As a result, we find that performance-based funding policies widened the racial gap in certificate completion in Tennessee and in baccalaureate degree completion in Ohio. Across both states, the estimated impacts on associate degree outcomes are also directionally consistent with performance-based funding exacerbating racial inequities in associate degree attainment.