New study shows how punishment-based funding hurts low-income students

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A new study published in the Journal of Education Finance suggests that public two- and four-year higher education institutions might be reducing enrolment of low-income students due to punishment-based funding (PBF) regimes, where money is tied to specific performance indicators. This paper joins the growing body of research that demonstrates the ineffectiveness of PBF in improving student outcomes.

Using data on all public American institutions in the Integrated Postsecondary Education Data System (IPEDS), the authors find that there in states with PBF regimes, there is a decline in Pell Grant revenue at both two- and four-year institutions. Pell Grants are needs-tested non-repayable financial aid available to low-income undergraduates; the level of institutional Pell Grants is therefore a useful proxy for the number of students from low-income backgrounds enrolled at an institution. According to the authors, the decline of Pell Grant revenue in PBF states could indicate that institutions are favouring higher-income students in their enrolment strategies. Higher-income students have higher retention and graduation rates, both key performance metrics in most PBF regimes. Reducing the number of low-income students – while socially indefensible – helps universities maximize their success at securing funding linked to performance

In our submission to Ontario’s University Funding Model Review, OCUFA argued against the adoption of punishment-based funding in the higher education sector. Not only is there no clear evidence that such systems are effective, there is growing evidence to suggest that PBF hurts students and educational quality. Moreover, these kinds of market-oriented funding models can’t help but create institutional winners and losers, and are at odds with the values of a public education system.

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