Giving Compass' Take:

• Cody Christensen and Frederick M. Hess argue that performance-based funding to incentivize higher college graduation rates may do more harm than good.

• How can funders help to devise more effective incentive plans? 

• Learn how to help adult students graduate college

The troubling dropout rate across American colleges and universities is starting to get the attention it deserves. As 2 million students drop out of college each year, the costs should give everyone pause — including a half-trillion dollars in unpaid student debt and public subsidies wasted on college-goers who never graduate.

Policymakers have sought to answer the challenge, with most states adopting performance-based funding policies. Currently, 32 states allocate a portion of their higher-education funding based on educational outcomes. Ohio, for instance, allocates more than half of its funding to colleges based on how many students earn degrees. Other common metrics including retention and job-placement rates.

At a time when tuition costs keep rising and concerns about academic quality keep proliferating, performance-based funding could bring healthy accountability to higher education. It makes sense that colleges that successfully graduate more students should receive additional state aid, while those with higher dropout rates receive less.

So, what’s the problem? Well, the truth is, these funding systems are more alluring in theory than in practice.

Encouraging colleges to find ways to graduate more students, whatever it takes, can incentivize them to churn out watered-down degrees or admit only the students who seem like the safest bets.

The point is not that performance-based funding systems need to go, but that they need to be overhauled with much more careful attention to their design, the incentives they create, and the mechanisms they include for ferreting out chicanery. There’s a need for careful auditing, and a need to ensure that these systems reward good colleges rather than those whose bureaucrats know how to game them.

Read the full article about college graduation incentives by Cody Christensen and Frederick M. Hess at American Enterprise Institute.