Impact of Performance Funding on Retention and Graduation Rates

Abstract

As the architect of the oldest and most stable performance funding program, Tennessee provides a unique opportunity to analyze the impact of changes in performance funding policies on changes in institutional retention and six-year graduation rates over time. Utilizing spline linear mixed models, this study examines the impact of changes in Tennessee’s performance funding policies on retention and six-year graduation rates at public four-year institutions from 1995-2009. The results show tying retention and graduation rates to performance funding was unrelated to changes in the performance measures over the fifteen year period examined. Additionally, the doubling of the monetary incentive associated with the retention and six-year graduation rate measures in 2005 was not associated with increases in retention rates. These results suggest that at their current funding levels, states’ adoption of performance funding programs, such as the one in Tennessee, may be insufficient to incentivize changes in institutional behavior as desired by state leaders.