For a glimpse of what President Obama’s proposed higher-education overhaul may look like if it ever becomes law, you may need to go no further than Tennessee. It’s the pioneer of tying higher ed funding to how students complete courses and graduate rather than to how many students a school enrolls.

For a glimpse of what President Obama’s proposed higher-education overhaul may look like if it ever becomes law, you may need to go no further than Tennessee. It’s the pioneer of tying higher ed funding to how students complete courses and graduate rather than to how many students a school enrolls. 

Tennessee first used performance-based funding in 1979, and the approach became popular around the country in the late 1990s and early 2000s. At the time, states used the approach to determine bonus funding rather than core appropriations. Tight budgets combined with problems in implementation led many states to eliminate the programs, according to a brief (pdf) from researchers at the University of Wisconsin-Madison. In the past several years, however, the approach has gained new interest, and now a dozen states use performance-based funding, with another two dozen considering a similar program, according to the National Council of State Legislatures.

Like other states, Tennessee’s early efforts represented just a small portion of the state’s higher-ed budget. Then, in 2010, Tennessee became the first state to tie higher-education funding completely to performance rather than enrollment. It wrangled with the questions the Obama administration will need to figure out about how to develop a system that encourages the type of performance and priorities policymakers want to reward.

Source: Bloomburg Business Week | Karen Weise