Deploying Limited Resources
Legislators must make tough decisions in a fiscal environment where state revenues are down and entitlement commitments are at an all-time high. With its tuition revenue base, postsecondary education is a popular target for cuts. While cuts to postsecondary education may be unavoidable, it is important for legislators to consider the impact of cuts on state college attainment and workforce development goals.
While state investments in postsecondary education are on the decline, there is much that can be done to ensure that existing investments result in higher college attainment. Mark Schneider echoed this premise in his 2010 study, which found that state and federal governments spent $9.7 billion over a five-year period on students who did not return for a second year. The graph below shows the distribution of state and federal funds lost to attrition. With anywhere between 20 and 25% of students not persisting onto a second year, state leaders could examine whether their student financial aid and appropriations strategies are effective in promoting college completion.
States can ensure that state dollars are used productively by setting strategic goals for postsecondary education and holding institutions accountable for achievement of those goals. Although most states have some level of accountability, they often are not focused toward the achievement of publicly stated goals.
With resource scarcity creating a competition for funds, some states have incorporated a performance funding element into their postsecondary appropriations formula. States like Pennsylvania, Indiana and Tennessee have built systems that reward institutions for meeting specifically defined college completion outcomes. This approach could promote more effective programs by identifying which strategies produce the greatest return for the state’s dollar.
States can think more strategically about resource allocation by considering the following:
- Basing part of institutional funding on performance measures, such as graduation, retention and transfer rates, and student success in remedial, freshman and major program courses
- Outlining goals in a strategic plan and investing in programs and strategies that promote attainment of these goals
- Evaluating the effectiveness of current policies and programs and tailoring investments accordingly
- Providing financial incentives to higher education institutions by rewarding them based on their ability to graduate both recent high school graduates and returning adults
- Recalibrating merit and need-based scholarships to improve retention and completion rates
 Mark Schneider, Finishing the First Lap: The Cost of First-Year Student Attrition in America’s Four-Year Colleges and Universities (Washington: American Institutes for Research, October 2010), http://www.air.org/focus-area/education/index.cfm?fa=viewContent&content_id=989.