Performance Funding in the UNC System — The James G. Martin Center for Academic Renewal

In 2022, the UNC System adopted a performance-funding model that awards dollars to universities to the extent that they meet a number of measurable benchmarks. However, the North Carolina General Assembly declined to fund the model. In response, the System is considering changing the formula. Will such a change benefit students, taxpayers, and institutions?

A new report by the Foundation for Research on Equal Opportunity lays out best practices for using performance-funding models in higher education. UNC’s new funding model meets most of the criteria.

The new model addresses concerns about cost, complexity, and rigor.












“Aligning State Higher Education Funding with Student Outcomes,” by Annie Bowers, argues that “outcomes-based funding has the potential to drive higher education reform, but its success depends on selecting the best performance measures and ensuring consistent funding over time.” Bowers examines a successful outcomes-based-funding (OBF) model at Texas State Technical College (TSTC) that is based exclusively on graduates’ earnings and that “steadily improved former students’ wages by 45 percent over eight years.”

Based on TSTC’s experience, as well as an examination of OBF metrics across various institutions, the report includes five policy recommendations:

• Choose the right metrics;

• Support higher-education accessibility;

• Keep OBF formulas consistent;

• Keep incentives strong;

• Incorporate a transition period.

The UNC System’s new model, presented to the Board of Governors for discussion last month, follows most of these recommendations (it omits only a transition period). It also addresses the North Carolina General Assembly’s concerns about the previous model’s cost, complexity, and rigor.

Here’s now UNC Performance Funding 2.0 would work, according to last month’s presentation:

The metrics remain unchanged from UNC’s previous model: four-year graduation rate, undergraduate degree efficiency, first-time student debt, transfer student debt, education and related spending per degree, and one metric to be selected by the institution (e.g. research funding at UNC-Chapel Hill). Another metric the UNC System should consider is students’ return on investment.

More could be done if the formula incorporated return-on-investment.












Two of the model’s metrics—first-time student debt and transfer student debt—directly relate to accessibility. The remaining metrics incentivize student success and institutional efficiency.

If implemented, the new formula would begin to align universities’ incentives with the UNC System’s goals of access, student success, affordability, and efficiency. However, more could be done if the formula incorporated ROI and represented a larger proportion of the System’s total funding. For now, it’s a step in the right direction.

Jenna A. Robinson is president of the James G. Martin Center for Academic Renewal.