College Financial Incentives Need To Emphasize Student Progress And Completion

July 19th, 2010

Currently, most public colleges are paid  by the state for full time enrollment or student credit hour  The credit hour and enrollment-based incentive structures that currently shape access institutions’ financial decision making was probably not as unreasonable at a time when resources were plentiful.  There was literally more room for failure and second (and third) chances at college success when there was plenty of organizational capacity.  Failure was less costly to students themselves when out-of-pocket tuition costs were low.  Today, however, when courses and classrooms are scarce and the rise of tuition continues unabated, the cost of failure to students, schools, and government is much higher.

At present most access colleges receive government support based on their full-time enrollment (FTE) base, or enrollment in courses (such as after third week of class in many 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 usually easier and less expensive to recruit a new student than to provide the necessary services for an existing student in academic trouble.

State subsidy to schools based, for example, on the common standard of third-week enrollment leads to such practices as not dropping “no-shows” during the first portion of the term; delaying exams or quizzes until the fourth week; even providing free parking for the first three weeks of each term.  Even colleges with ample enrollments face perverse incentives regarding student persistence and completion.  For example, some community colleges that turn away students because of state cuts simultaneously implement heavy reductions in their student services and developmental courses in order to fund advanced classes.  In another common phenomenon, states that compensate schools by student contact or credit hour encourage practices like adding hours but not requiring students to do more work.

These perverse financial incentives must change!