Today most colleges receive government support based on their full-time enrollment (FTE) base, or enrollment in courses (such as after third week of class in community colleges). The result is often enrollment management that churns students: As long as the number of new students equals the number of dropouts, revenue remains stable. An axiom among enrollment managers is telling: it is always easier and less expensive to recruit a new student than provide the services for an existing student in academic trouble.
State subsidy to schools aid based, for example, on the common standard of third-week enrollment leads to such practices as not dropping no shows during the first three weeks of the semester; delaying exams or quizzes until the fourth week; even free parking for first three weeks of each term. But even colleges with ample enrollment have perverse incentives for completion. For example, some community colleges in California that are turning away students report heavy cuts in their student services and developmental courses in order to fund advanced classes. In another common phenomenon, states that compensate schools by student contact hour encourage practices like adding hours but not requiring students to actually attend additional class sessions.
Concern over inappropriate incentives was raised in the Spellings Commission report , which called for the creation of rigorous national standards for student learning and organizational academic performance in higher education. Yet the intuitive appeal of raising standards begs the question of how to create durable, self-re-enforcing incentives for high performance. To wit: How can we organize colleges and college funding in ways that systematically and reward achievement and completion, rather than mere attendance?