Understanding the Issue:

Why Leveraging OBF for Equity is Important

The Challenge: Can OBF increase equity?

Outcomes-based funding (OBF) policies are a common approach to distributing state dollars to public colleges and universities. Outcomes-based funding is based on a theory about how three important elements of the postsecondary landscape work together. First, states construct policies that provide financial rewards to institutions to improve outcomes that are important to the state, such as increasing college completion. Second, institutions respond to these incentives by adjusting their policies and practices to achieve the outcomes identified in a policy. Third, these shifts in state policy and institutional practice are designed to improve student outcomes. If OBF works as designed, state dollars and institutional practices work together to create an environment that is focused on increasing the number and percentage of students who succeed in college.


OBF is a prominent and continuing part of the state postsecondary policy landscape. As of FY2018, about 30 states have adopted some form of OBF, and hundreds of millions of dollars are now driven out to colleges and universities via these policies.  In short, OBF has enormous potential to affect both students and the institutions that serve them.  


However, there are legitimate and serious concerns about the extent to which these policies support or frustrate efforts to close attainment gaps, particularly for low-income students and students of color.  These concerns extend to the effect OBF policies may have on institutions that enroll large numbers of underserved students or institutions that have been historically or systematically under-funded.  

What does equity mean in the context of OBF policies?

Simply put, equity-focused OBF policy should be designed to improve outcomes for underserved students and close persistent gaps in postsecondary access, retention and attainment. But the process of achieving these goals involves the complex interplay of equity at three distinct levels—students, institutions, and states/systems. For equity to increase under OBF, there must be an equity focus for each level.  Our definition of equity in the context of OBF is provided below.


Equity for Students. All students, regardless of their racial, ethnic, or socioeconomic background, must have equitable access to quality postsecondary education and the resources they need to succeed once they enroll. For equity to be realized in U.S. higher education, students that have historically been left behind, particularly students of color and low-income students, must receive targeted support and interventions on their path to degree attainment.


OBF policies provide fiscal rewards to institutions when all students increase their persistence and completion. However, to address equity, OBF policies can also incentivize and reward the success of student groups recognized as underserved by a state, such as low-income or rural students, students of color, or other students facing attainment gaps in the state.  


Equity across Institutions. To achieve equitable outcomes for students, institutions need adequate resources, deployed effectively, to improve outcomes for underserved students. However, the resource gap between institutions in a single state is often wide. In addition, variation in mission and student populations further exacerbates an uneven playing field, as more resources are needed to ensure that historically underserved students succeed.


OBF policies incent institutions to adjust policies and practices to increase student outcomes. Equitable OBF policy can help ensure that all institutions have the resources and supports they need to serve their students, so that they can reasonably be held accountable for their students’ success. 


State or System Policies that Advance Equity. Postsecondary policymakers have an obligation to design and implement policy that promotes equity for students and across institutions.


OBF policies identify outcomes that are important to the state, such as increasing college completion. A policy that advances equity will consider outcomes for underserved students and the overall success of under-resources institutions as well. Policies that advance equity will balance a focus on student outcomes with providing:


  • Extra incentives and rewards for institutions to increase outcomes for historically underserved student populations;

  • Adequate resources and support for institutions so that they can be expected to increase student outcomes; and

  • Flexibility in performance measures to recognize variation in institutional mission and student demographics.