Dangling the lure of state funding, Colorado wants to encourage its public colleges to better serve disadvantaged students. But the latest update to its funding formula, which uses seven criteria to judge community and state colleges and universities, may not work as well as intended, according to studies and experience in other states.

Funding formulas that hope to drive outcomes sought by Colorado “could really have some unintended consequences for the student experience” said Cecilia Orphan, an assistant professor at the University of Denver who specializes in higher education public policy. The new formulas will go into effect next summer.

The state’s newest model will provide money to schools based on metrics that include how many students of color it enrolls, and how many are low-income, the first to go to college in their family and are from Colorado. A recent Colorado study found college-going rates for high school graduates was about 56% in 2017, less than the national average. 

College officials have rallied around updates to the state’s outcomes-based funding formula, saying it will shift the state’s colleges and universities away from prioritizing student enrollment and instead focus on promoting access for disadvantaged students and encourage institutions to provide resources for the neediest students to complete their education.

Winning the positive changes that the state wants for its students, however, will be an uphill battle given how mixed results have been in other states. 

In other states, research has found similar funding models have created competition among schools that has hurt students. And Colorado may have weaker leverage because it offers its institutions of higher education proportionally less funding this year and possibly in future years. Money is cited as a way to help encourage changes in college practices.

Such outcomes-based formulas across the country don’t always guide schools toward better serving its students, according to analyses. 

Results may be mixed because states vary in how they fund schools, said Denisa Gándara, a Southern Methodist University assistant professor of higher education. The mission of schools in how they teach and attract students also varies.

“The amount of funding that’s tied to performance varies across states and the metrics that are measured varies across states,” Gándara said. 

That is not to say that Colorado’s updates won’t have positive effects for students, such as meeting goals to increase student access and college completion.

Both Orphan and Gándara worry about how competition created by the funding model affects students, as seen in other states.

Orphan said funding by outcomes in some states reduced coordination among schools because they were competing to attract certain groups of students. But she applauded Colorado higher education leaders for showing that they are willing to work together with state policymakers to rally around shared goals.

“With the recent change to focus more explicitly on racial equity and first-generation students and students from Colorado, that is really exciting,” she said.

Gándara cited positive and negative effects in other states. For instance, her research found that the funding formulas don’t always increase first-generation enrollment.

Many performance-based systems reward colleges for how many students graduate in four years. The hope is that institutions do more to support students who might otherwise drop out. But in some cases, schools instead enroll more students with higher SAT and ACT scores. College admissions officers see these scores as a measure of how successful students will be in college, but focusing on test scores also favors white, middle-class students. 

Gándara said her own research, as well as others’, has shown that four-year institutions in particular become more selective, which can limit access to certain colleges for some students.

In Colorado, the new funding model might or might not encourage changes at colleges, Orphan said, because the state provides on average less than 30% of their revenue. Tuition brings in the rest.

For the coming school year, Colorado cut its higher education funding by 5% and avoided dramatic cuts by drawing on federal pandemic stimulus money.

Next year, it’s unclear how deeply the state will cut college budgets.

Orphan said some college officials are preparing for Colorado eventually making zero investment in higher education. That would virtually eliminate any state leverage over how colleges spend their money.

“They’re trying to generate alternative revenue, because the state is just pulling out every year,” Orphan said. “For these models to be effective, it actually has to make up a larger share of an institution’s budget.”

Higher education reporter for Chalkbeat Colorado in partnership with Open Campus.