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State governments and students are the two funders of public postsecondary institutions. While federal financial aid and research grants also contribute to institutions' bottom lines, state appropriations and student tuition remain the primary sources of postsecondary funding.

As the state share of postsecondary funding has declined, policymakers have considered two strategies that might deploy remaining dollars more efficiently: performance funding and competitive granting. Both funding tactics recognize the need to maintain education quality and increase degree productivity.

In 2011 alone, twelve state legislatures enacted public laws related to performance funding. Performance funding is appealing to policymakers because it replaces the focus on access and enrollment with concentration on access and success. Most states and postsecondary systems have adopted performance metrics in advance of implementing performance funding, so that institutions recognize how success will be measured. Performance funding is a promising mechanism, as long as states couple the formula with meaningful review of effective policies and strategies.

Competitive granting allows states and postsecondary systems to invest in institutions that produce effective strategies. By leveraging resources in this way, states hope to identify and scale best practices more efficiently than if they had appropriated money to all institutions regardless of effectiveness.

Neither of these practices is a panacea. However, they reflect a commitment to advancing degree productivity and workforce alignment even in a less than favorable funding environment.

To learn more about postsecondary finance, please check out the "What States are Doing" and "Selected Research and Readings" links.

 

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