Evolving Our Understanding of Equitable Postsecondary Finance
By Martha Snyder, Partner
Inside Higher Ed recently published an article with a headline that caught my eye. Titled “Funding Models Don’t Drive Performance, Study Finds” it details a recent peer-reviewed study in Educational Researcher (Kelchen, et al) that utilized a novel database to offer a longitudinal examination of the relationships between different funding models and student enrollment, completion and post-graduation outcomes. The results showed that it is the appropriations amount and the clarity and consistency of allocation formulas that are more likely to influence outcomes rather than state funding models themselves.
Martha Snyder is a partner at HCM Strategists specializing in strategic finance, institutional funding and affordability modeling, and data analysis.
As someone who specializes in strategic finance and funding for institutional equity in higher ed, I agree that the conclusions overall make sense and reflect where the field is going—to more hybrid approaches that include student-centered adjustments both on the enrollment and outcomes factors. The field is also getting more precise in understanding the level of funding necessary to achieve desired levels of student success across different groups and reflect those in the adjustments or incentives built within funding models. It is always good for the field to continually evolve and self-assess the implications of various approaches to policy. It is also important to know and understand the nuances and variations even within approaches that are framed under a common definition. The nuances may enhance or limit their impact. This is true across all policy areas—be it free college, financial aid, or state finance approaches.
The report notes that they were not able to distinguish in more detail between the components of funding formulas (share of funding across each). This is an important factor as we know there is significant variation across states and having a more nuanced understanding of the relative significance of each funding component can further help inform state policy moving forward. Additionally, it is important to understand and recognize not just the variation of how a state allocates its funding across different model components (base, enrollment, outcomes/incentive, etc.) but also to put state funding in context of other sources of funding for institutions, the orientation and incentives of those resources and the size or scope of those resources compared to state funding. This is a critical aspect of assessing and understanding funding adequacy. Having this additional analysis can help to inform the level and role of state funding to support more equitable student access and success and prioritize credentials that have value. In the context of the study's conclusions, the relative size and scope of state funding could be an underlying reason why the impact of various funding models are minimal in the four-year sector. Often, state funding for four-year institutions reflects a lower share of total institutional funding. If institutions are more dependent on tuition, the impact of state funding and any incentives within will be more diminished. Tuition itself is an enrollment incentive but an enrollment incentive that favors access to better resourced students.
The Community College Research Center's "Paving the Way to Equitable, Adequate and Effective Community College Funding'' aims to both inform the field on understanding the costs of various student-centered supports and provide a broader frame for understanding state postsecondary funding. The latter is reflected in HCM's report "Mapping Community College Funding to Develop Equitable and Effective Finance Policy.” The report takes a comprehensive look at community college funding in three states—California, Ohio and Texas—and "maps" the three primary revenue streams: state appropriations, tuition and recurring local revenue. The analysis of these revenue streams includes the share of total funding, the policies that dictate the level, distribution and use of the resources, the individual and collective incentives and the implications on equity for both institutions and students. The findings of HCM's analysis are relevant to the findings of the Kelchen study. For example, even though all three states include some funding for student outcomes (incentive funding), the scope of this funding in the context of total revenue ranges from 3% in Texas (pre HB8 reforms) to 42% in Ohio. The prioritization or consideration for student equity both in access and success also varies considerably, particularly when looking at overall revenue sources and their underlying incentives.
Recently we’ve seen states take steps to incorporate these concepts in the design of their funding models. For example, Texas’ significant community college funding reforms, passed in 2023 through House Bill 8, prioritizes student outcomes but also ensures institutions have a minimum level of funding to support basic operations. The calculation takes into consideration student characteristics, program cost mix and school size and also factors in the ability of institutions to generate revenue from local property taxes to fill this gap.
Another example is the recent recommendation of the Illinois’ Commission on Equitable Public University Funding. These recommendations calculate an adequate funding level for each of the state’s 12 public universities. The calculations include considerations for base costs and variation in program mix and institutional mission but also include student-centered adjustments that are grounded in best practices and research on what it costs to serve students equitably.. The formula also takes into consideration the variable access institutions have to tuition and other revenue sources to inform a more equitable distribution of new state investments.
Having research such as the work of Kelchen, et. al. is critical to understanding the overall impacts of different state funding approaches on student access and success. More comprehensive assessments of state funding, both the individual components of funding models and the relative size and scope of state funding in the context of other institutional resources will be essential to informing how states can elevate more strategic, equitable and student-centered investments.
