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Apr 22, 2016  |  PERMALINK »

Outcomes-Based Funding in Higher Education: Unintended Negative Impacts on Low-Income and Underprepared Students

By Anna Cielinski

Earlier this week, the Community College Research Center (CCRC) announced the forthcoming release of a new book, Performance Funding for Higher Education, in October 2016.  CCRC’s book will include findings that performance funding creates unintended incentives for postsecondary education institutions to restrict the admission of low-income and underprepared students who are less likely to finish college and thus less likely to “pay off” under the institutions’ funding formula.  State policymakers should be careful to design such funding systems with equity in mind and build in guardrails to prevent these unintended consequences. 

This book will add to a growing body of research confirming the concerns CLASP has raised about the potential for state outcomes-based funding, also called performance-based funding, to have unintended consequences for low-income and underprepared students. In principle, measuring postsecondary institutions’ success based on student outcomes rather than enrollments could help to promote improvements in the supports low-income students need to stay in and complete postsecondary education programs. However, without strong safeguards, outcomes-based funding can instead create incentives to reduce access for low-income and underprepared students and unduly punish the open-access institutions that serve them.

A recent paper in the Journal of Education Finance found some evidence that four- and two-year colleges in states with performance-based funding (PBF) policies changed their recruitment strategies to improve their outcomes, likely meaning they will enroll fewer low-income students. Colleges facing PBF received slightly less Pell Grant revenue than colleges in non-PBF states, which may represent a slight shift toward enrolling students from higher-income families.

Similarly, in a 2014 working paper from CCRC, which will likely be included in the upcoming book, researchers asked community college administrators in three states about potential unintended consequences of performance-based funding. The most frequently cited actual or perceived unintended impact was restricting the admission of less-prepared students, in order to bolster graduation rates.

Even more troubling is that these studies both indicate two-year community colleges, which are designed to be open-access institutions, may be driven by the incentives in performance-based funding to close their doors to some low-income and underprepared students who would otherwise have enrolled.

To mitigate the incentives created by performance-based funding for institutions to enroll fewer low-income and underprepared students, state policymakers must take steps such as

  • Providing targeted funding incentives for enrolling and supporting low-income and underprepared students to balance out the negative incentives from performance-based funding without such incentives. Examples include tying funding to a measure for enrolling Pell-eligible students, a measure for graduating Pell-eligible students, and a measure of interim progress or persistence for all students.
  • Differentiating formulas for four-year institutions, two-year institutions, and career and technical colleges, taking into account the unique needs of students in those systems.
  • Putting into proper context any labor market outcomes included in the state’s college funding formula, such as students’ post-college employment and earnings.  For instance, any consideration of students’ labor market outcomes must
    • take into account the variation of earnings across programs of study (e.g., schools with higher percentages of engineering graduates may have higher average initial earnings than institutions with a higher percentage of liberal arts majors);
    • index earnings to regional wage and economic benchmarks (recognizing that different parts of a state may have lower wages, even if the students leaving postsecondary institutions in those regions are succeeding equally well in gaining employment); and
    • take into account the value to society for institutions to offer programs of study that may lead to employment in occupations with relatively low wages (e.g., programs that prepare students to become teachers, social workers, child care workers, and other occupations that provide an important social good, even though their graduates can be expected to earn less than those in other fields).  

Apr 13, 2016  |  PERMALINK »

Recent Study Highlights Success of the Arkansas Career Pathways Initiative

By Judy Mortrude

A new study from CollegeCounts reveals the powerful impact of public investment in the Arkansas Career Pathways Initiative (CPI), which provides education and training for low-income parents. CPI’s results show what can be achieved through sustained career pathway system building.  This is especially significant as states develop and implement new career pathway programs as required by the Workforce Innovation and Opportunity Act (WIOA), which also prioritizes disadvantaged groups.

CLASP wrote about CPI five years ago as an example of TANF education and training innovation. CPI uses TANF funds to provide modest supports to low-income parents (up to 250 percent of the federal poverty level) enrolled in a targeted career pathway at a community college. CPI participants receive counseling and tutoring as well as financial assistance to pay for costs such as child care, gas, or textbooks. When it was first piloted in 2005, no one expected CPI participants to outperform the “traditional community college student”; however, that’s exactly what has happened. 

Over the past decade, CPI has grown from offering great programs to encompassing a great system; cross-agency policies focused on meeting quality standards have moved CPI from an innovative pilot to consistent excellence. According to CollegeCounts, CPI participants were twice as likely to complete their programs as non-CPI community college students.  Nationally, CPI participants outperform the achievements of all community college participants as well.  National Student Clearinghouse research data on academic awards shows a 39 percent completion rate for all community college participants from 2008 to 2014. This is compared to 62 percent for CPI participants from 2008 to 2013.

Further, when CPI participants are compared to a “matched population of their community college peers,” others who have significant education and economic disadvantages, CPI students are six times more likely to have completed an Associate’s degree. These results have been improving over time, telling an even more powerful story of progress.  In the early days of CPI, participants achieved degrees at twice the rate of their matched peers; by 2011, they were earning AA degrees at eight times the rate of their community college peer group. Sustained efforts are multiplying impacts.

These educational gains are only half the story; economic gains also demonstrate CPI’s initial and growing success in creating pathways for equity. In 2006, at CPI’s outset, the total annual earnings gap between CPI participants and other Arkansas community college students was $6,432. This wage gap narrowed to $4,514 in 2009 and $1,584 in 2011. In specific job sectors, the gap narrowed even further. In Education and Health Services occupations, the gap decreased from $5,999 in 2006 to $597 in 2011. In the Leisure and Hospitality sector, the gap is down to just $61 a year.

As Arkansas Department of Higher Education Director Brett Powell recently stated, higher education is “No Longer an Exclusive Club.”  Just as the GI Bill and Pell Grants opened the doors of educational and economic opportunity to millions of Americans, career pathway efforts across states are opening those doors even wider.  Career pathway partners are working together to address the education and employment gaps that leave far too many Americans behind. CLASP commends Arkansas for its leadership in this work.

Arkansas has been leading the way in career pathway development for over a decade and was one of 10 states in CLASP’s Alliance for Quality Career Pathways. Through the Alliance, state and local career pathway champions established six quality criteria for career pathway SYSTEM building. Arkansas’ results proves the power of this sustained effort.

View the chart below to see Arkansas' successes in career pathways system building. 

Apr 12, 2016  |  PERMALINK »

U.S. Department of Education to Address Indebtedness of Student Loan Borrowers with Disabilities

By Lauren Walizer

The Department of Education (ED) announced today that by matching student loan records against data from the Social Security Administration (SSA), it has identified 387,000 federal student loan borrowers who, due to their disability status, qualify for the Totally and Permanently Disabled (TPD) discharge, yet continue to unnecessarily struggle with student loan repayment.  Nearly 179,000 of these individuals are already in default on their loans.

To address this issue, starting next week, ED will begin notifying these borrowers – who have been determined by the SSA to be TPD, meaning their disability status will not improve – of their eligibility for loan forgiveness and provide them with an application for forgiveness that they can complete through the mail or online. CLASP encourages entities that work with individuals with disabilities to raise awareness around this issue.

This push by ED will ease the burden of student loan debt for tens of thousands of disabled borrowers and potentially forgive up to $7.7 billion. Without a TPD discharge, when disabled borrowers default, they may be subject to the Treasury Offset Program capturing their Social Security disability payments to repay their student debt. This is extremely problematic, as many recipients of Social Security disability payments rely entirely on these payments to support themselves.  Nonpayment of student loans can also affect credit scores, which may make it harder for borrowers to secure housing.

Like most other federal loan forgiveness options, the loan amounts discharged through TPD may be subject to taxation. The Obama Administration’s proposed FY 2017 budget calls for excluding such discharges from taxable income; if the budget were enacted, ED could automatically discharge loans for borrowers who have been identified as TPD.  CLASP encourages Congressional action to prevent disabled borrowers from having to pay taxes on any discharged amounts.

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