University of Arkansas Office for Education Policy

Revamping Higher Education Funding in the Natural State

In The View from the OEP on August 10, 2016 at 11:31 am


Late last month, Gov. Hutchinson supported the Arkansas Department of Higher Education (ADHE) Coordinating Board’s unanimously approve proposal to change the funding formula for Arkansas’s public post-secondary institutions. The proposed funding model uses an outcomes-based approach, placing a higher priority on college completion than the current model. Right now, the main consideration in funding Arkansas colleges and universities is enrollment, a policy that does little to reward success.

While the proposed funding formula is still in the early stages of the legislative process, it is designed to spend money more effectively and support universities’ efforts to get students through rather than to college. The proposal goes to the Legislature during the 2017 session and would—if passed—make Arkansas’s higher education funding formula similar to other states with outcomes-based funding formulas. But what exactly is this proposed plan and is it good for students?

Higher Education Funding in Arkansas

Currently, the state’s higher education funding formula has a 90-10 split, based on need (enrollment, infrastructure, etc.) and performance (graduation, credit completion, etc.), respectively. Under the new plan, 100% of funding is tied to outcomes like program completion, number of graduates getting jobs/other degrees, and on-time graduation rates. A press release from the governor’s office expressed strong support for the proposal as a way to incentivize institutional leaders to emphasize educating students by putting money into resources, like academic support services, that are directly related to student learning.

Former ADHE director Bret Powell described the potential switch as a move that “would change the conversation from, ‘We have students, so give us funding,’ to ‘We have achieved these results, and the funding should follow those results.’” Though it is still unclear in these early stages, it is unlikely the new funding formula would lead to decreases in funding. In addition, the new formula may lead to fewer increases in charged tuition and fees, lessening the financial barriers to college and potential student loan debt faced by many Arkansas families.

Outcomes-Based Funding Elsewhere

Although this change to Arkansas’s higher education funding formula is still in the proposal stages, if Arkansas lawmakers approve the change we will join several other states in funding postsecondary education based on outcomes. For a complete description of funding allocation in the other states, please visit the National Conference of State Legislatures.


Similar to Arkansas’s current model, Indiana has used a two-part funding system based on enrollment changes and performance of students. A majority of Indiana’s funding is based on the change in enrollment from year-to-year, but a gradually increasing percentage of funding is tied to student performance (6% of funding in 2014-15). An important aspect that Arkansas legislators should consider is the seven clearly stated outcomes in Indiana’s formula, including degree completion, student persistence, and remediation success. Degree completion has the most weight in this formula.


Under the leadership of Gov. John Kasich, Ohio restructured their higher education funding formula in fiscal year 2014-15. Much like Arkansas’s proposed plan, Ohio ties 100% of institutional funding to performance. At Ohio’s public 2-year and 4-year institutions, funding is tied 100% to undergraduate students’ course completion and graduation rates. At the moment, it is still a bit too early to know what the impact of this change has been in Ohio.


Tennessee passed the Complete College Tennessee Act of 2010 to improve the state’s college completion rate. Each institution receives a base fund to support operations, but 100% of funds on top of this base are a result of a points system based entirely on student outcomes. Tennessee includes credits accumulated, degrees completed, and 6-year graduation rates at 4-year institutions in the model. Community colleges have similar outcomes with additional outcomes including dual enrollment at a 4-year institution and graduates who were placed in jobs.

Promise and Pitfalls of Changes

There is something to be said for focusing on outcomes. Tying institutional funding to student success will likely hold institutions more accountable for educating students, rather than focusing on increasing enrollment numbers and potentially enrolling higher numbers of academically unprepared students who may dropout after accruing some student loan debt. The most likely outcomes will focus on degree completion and credits earned.

Improving college outcomes is admirable and important to the state, but goals will need to be very clearly stated (like those in Indiana) and implemented with controls to ensure the value of a college degree does not get “watered down”. A legitimate concern with an outcomes-based formula is the appeal of more money leading institutions to become “degree factories” rather than preparing students for their future careers.

At the moment, we do not know all of the details of the proposed changes to Arkansas’s higher education funding formula. The only sure thing is the ADHE wants to change the funding formula to be based entirely on student outcomes and having little to do with enrollment numbers. The Legislature has a tall task ahead of them in 2017, one that could profoundly change the way Arkansas’s postsecondary institutions are funded.

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