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One Way States Can Help Student Loan Borrowers

One Way States Can Help Student Loan Borrowers

By Sophie Quinton, Stateline.org (TNS)

WASHINGTON — Ali Sinicrope and her husband would like to buy a house, but they’re not sure they can afford it. They’re public school teachers in Middletown, Conn., and they owe $80,000 in student loans.

“It just adds up,” Sinicrope, 40, said of the $600 monthly payment her family strains to make. “That’s less money, now, that we can save toward a house, that’s less money that we can put toward our kids’ college tuition.”

Connecticut lawmakers want families like the Sinicropes to spend less on student loan payments and more on everything else. Starting next year, the state will offer a refinancing program that will allow some borrowers to save money by lowering the interest rates on their loans.

“The burden of this debt is a real millstone around the neck of our economy, and we need to address it,” said state Rep. Matt Lesser, a Democrat who represents Middletown. Almost 18 percent of Connecticut residents who have a credit file have student debt — $31,100, on average, according to the Federal Reserve Bank of New York.

Although the federal government dominates the student loan market, there’s much states can do to help borrowers who are struggling.

States have long recruited doctors, dentists and teachers to underserved areas by promising to forgive or repay their student loans. Now, some states are establishing refinancing programs. Connecticut has gone further this year. Not only did Democratic Gov. Dannel Malloy sign a law creating a refinancing program, he also signed one that laid ground rules for student loan servicers and created a student loan ombudsman’s office that will advise borrowers.

Such efforts won’t stop college costs from rising. The University of Connecticut’s trustees meet this week to decide whether to raise tuition by 31 percent over four years. The state flagship says it needs to boost tuition partly to offset reductions in per-student state funding.

Lesser said lawmakers need to find ways to fund state higher education systems and slow tuition growth. But for many Americans, he points out, the damage already has been done.

Nationwide, Americans owe about $1.3 trillion in student debt. Last year, 35 percent of student debt was held by borrowers over age 40, according to the New York Fed.

Most Americans rely on student loans to pay for bachelor’s degrees and graduate studies. In 2011, 68 percent of students who have been in college for four or more years reported having taken out a student loan — primarily federal loans, according to the most recent data from the National Center for Education Statistics.

A generation ago, many Americans got their federal student loans through states. Almost every state had an office that issued federally guaranteed loans. After the U.S. Department of Education began issuing loans directly in 2010, some state student loan authorities closed their doors.

Eighteen states, including Connecticut, still issue student loans through their own student loan authorities (or in North Dakota’s case, a state bank), according to the Education Finance Council, a trade group. State agencies generally finance their loans by selling low-interest, tax-exempt bonds.

Rhode Island’s student loan authority (RISLA) developed a refinancing program after listening to borrowers, said Charles Kelley, the agency’s executive director. People kept asking if there was anything the agency could do to reduce the interest on their loans, in the same way that banks can reduce the interest rate on a mortgage when interest rates fall, he said.

It’s hard to get a better deal on a loan than a subsidized, federal undergraduate loan. Right now, they’re available at a 4.29 percent interest rate, and the federal government pays the interest while borrowers are in school. Loans for graduate students are pricier, as are federal parent loans. Private loans can be expensive, as can older federal loans, issued before the financial crisis.

“We had people coming to us with federal parent loans that were 7.9 or 8.5 percent fixed,” Kelley said of the interest rates he saw. Borrowers with old loans issued by the Rhode Island agency also wanted to know if they could refinance.

RISLA launched its program 18 months ago. So far, the authority has refinanced loans for 349 borrowers, primarily people who live in Rhode Island or went to college there. For now, it’s paying for the program with taxable bonds.

Lauren, a Rhode Island teacher who didn’t want to disclose her last name because she’s revealing personal financial information, refinanced a private student loan through the program last year. “I’ve been repaying for seven years,” the 29-year-old said of her debt. She chose the lowest-cost option: a five-year loan that can have an interest rate as low as 4.24 percent.

Seven states had approved or piloted a student loan refinancing program as of November, according to the National Conference of State Legislatures. The U.S. Treasury Department cleared the way for more states to adopt such a program last month, when it approved the use of tax-exempt bonds for student loan refinancing.

For states that already have a student loan program, setting up a refinancing program costs next to nothing. RISLA didn’t need legislative approval to get started. Connecticut’s program, created by law earlier this year, will begin with a pilot funded by transferring $5 million from one of the student loan authority’s subsidiaries.

©2015 Stateline.org. Distributed by Tribune Content Agency, LLC.

Photo: Jorge Villalba poses for a portrait on Sept. 3, 2015 in Encino, Calif. Villaba is struggling to pay off student loan debt. (Brian van der Brug/Los Angeles Times/TNS)

 

Why Many States Are Panicked By The Federal Clean Power Plan

Why Many States Are Panicked By The Federal Clean Power Plan

By Sophie Quinton, Stateline.org (TNS)

WASHINGTON — The four huge power plants that stand smoking in Colstrip, Mont., don’t just employ hundreds of workers. They pay property taxes that allow the city of some 2,000 people to afford services other remote, rural communities lack, such as a parks and recreation department.

The electricity-generating plants consume almost all the coal mined at the Rosebud Mine, the second-largest coal mine in Montana. When the mine removes — or “severs” — coal from the earth, the mining company pays the state a severance tax on the value of the coal. Some of the money is invested into state trust funds, and some goes to support statewide services, such as public schools.

But new federal regulations for power plants threaten to put cities like Colstrip out of business. Puget Sound Energy, a part-owner of the Colstrip plants, already wants to close two of them. That would have a fiscal impact on the entire state. A 2010 University of Montana study found that the Colstrip operations contributed 4.5 percent of all state tax revenue and $104 million in state and local taxes.

Many states with significant reserves of coal, oil and natural gas depend on revenue from severance taxes on natural resources. In 2013, Montana’s tax revenue from severance taxes was nearly 12 percent. In West Virginia it was 13 percent and in Wyoming it was 39 percent, according a Stateline analysis of U.S. Census Bureau data.

No wonder those states are so upset about federal Clean Power Plan regulations, President Barack Obama’s bid to reduce the emission of greenhouse gases affecting the Earth’s climate. The regulations, which take effect in December, will require states to reduce emissions from power plants. Coal emits more greenhouse gases than other energy sources, so one way for states to meet the federal goal is to shut down coal-fired plants.

State Rep. Duane Ankney, a Republican who represents Colstrip, said the federal rule would cost Montana dearly: “We’re talking a $700 million to $800 million fiscal impact to the state, county and local governments.”

Montana is one of 26 states suing to stop implementation of the regulations. But regardless of the outcome of the lawsuits, some communities that have depended on coal jobs and tax revenue may have to learn to live without them.

The energy industry is prone to boom-and-bust cycles, and right now, the coal and oil industries are going through a bust. A growing number of coal companies have declared bankruptcy in the past year. State budgets have tightened as the industry slides.

Last month, West Virginia’s Democratic Gov. Earl Ray Tomblin announced a 4 percent, across-the-board budget cut to compensate for a deficit driven by a $190 million drop in severance tax collections. Wyoming’s Republican Gov. Matt Mead announced $200 million in budget cuts, citing falling energy prices.

A boom in natural gas has created a cheaper, cleaner alternative to coal, while federal regulation has made coal-fired power plants more expensive. A 2012 mercury and toxic pollution rule, for example, has led operators to shut down plants or install new equipment.

States like California, New York and Washington, the home state of Puget Sound Energy, have made big, public commitments to fighting climate change by shifting their energy consumption to cleaner fuels. Washington’s commitment is one reason why Puget Sound Energy wants to stop getting electricity from Colstrip.

“Coal reductions are happening in all 50 states,” said Bruce Nilles of the Sierra Club, which along with its partners has helped to convince states and municipalities to shut down 206 power plants since 2010.

The U.S. Energy Information Administration expects coal-fired power plants to continue to shut down and for very few new coal-fired plants to replace them, even without the Clean Power Plan. That’s a big deal, because more than 90 percent of the coal mined in the United States is burned to produce electricity, according to the EIA.

Analysts say the economic woes felt in some parts of coal country, such as southeastern West Virginia, are part of a long-term trend.

“This one’s not cyclical. This is a permanent shift,” said Evan Hansen, principal at Downstream Strategies, a West Virginia environmental consulting firm.

Hansen said Central Appalachia faces an additional challenge: digging for coal is more expensive there than in other regions of the country, partly because of federal mining regulations.
The Clean Power Plan gives each state a different emissions reduction target, depending on the mix of energy used in that state. California is well on its way to meeting its target; Montana may struggle.

“There is no wiggle room for Montana in this Clean Power Plan,” Ankney said.

Montana has to reduce its carbon emissions by 47 percent of 2012 levels by 2030. Over half Montana’s electricity is produced by burning coal, according to the EIA. Most likely, Ankney said, complying would mean shutting down eight small coal plants.

Ankney is trying to keep the Colstrip plants running. Last month, he traveled to Washington state to plead with legislators there who have to approve Puget Sound Energy’s planned changes. As many as 400 jobs are at stake.

Ankney said there just aren’t that many other good jobs in eastern Montana, a sparsely populated, rural part of the state. Colstrip is 30 miles from the nearest highway. The closest large city is Billings, a 120-mile drive away.

It’s always tough for a small, isolated economy to lose its dominant industry. Consider steel mill and factory closures in the Rust Belt in the 1970s and ’80s, or military base closures in the 1990s.

The coal industry has left Colstrip before, when trains switched from coal to diesel fuel in the mid-20th century. “Colstrip became pretty much a ghost town. There was no longer any reason for it to exist, other than that the school was here,” said John Williams, Colstrip’s mayor.

Some utilities and states that are moving away from coal have agreed to spend money to help workers transition, Nilles said. The Obama administration has set aside up to $35 million to help develop local economies and proposed additional funding for job training that Congress has yet to approve.

In states that rely on severance taxes, a struggling coal industry could have a bigger impact on tax revenue than on statewide employment levels, said Mark Haggerty, an analyst at Headwaters Economics, a research company based in Bozeman, Montana.

In Montana and Wyoming, coal mining raises a disproportionate amount of revenue. In Wyoming, coal mining employed about 1.8 percent of all workers, according to a University of Wyoming study in 2012, but generated about 11.2 percent of all government revenue.

The study’s co-author, Robert Godby, hasn’t had the chance to analyze the final Clean Power Plan rule yet. But in looking at the draft, he anticipated that Wyoming’s combined natural gas and coal revenue could fall as much as 46 percent by 2030.

Severance tax money has allowed many energy-producing states to keep other taxes low. Wyoming, has neither a personal nor a corporate income tax.

The Clean Power Plan pushes states to invest in renewable energy sources, which could create a new source of revenue. Wyoming started taxing wind power in 2012, for instance. But wind power isn’t much of a moneymaker. Wind is free, so all a state can do is impose sales and property taxes on wind farms, Godby said.

Coal-producing states could be forced to raise other taxes if severance taxes keep falling. Montana state Sen. Roger Webb, a Republican, raised the possibility last year in a newspaper column criticizing the Clean Power Plan — and not because he supported the idea.

“The president’s carbon regulations create a giant, gaping hole in our state’s budget picture,” he wrote. “The most likely outcome of all this is going to be a huge property tax hike on Montana homeowners and small businesses to fill the gap.”

Ankney doesn’t expect lawmakers to seriously consider increasing taxes. Raising taxes, after all, is anathema to the state’s conservative-leaning Legislature. Instead, he said, “It will be cuts rather than raising taxes.”

Photo: New federal regulations for power plants threaten to put some tiny rural cities out of business. (Flickr/arbyreed)

Are Cities And States Prepared To Host More Refugees?

Are Cities And States Prepared To Host More Refugees?

By Sophie Quinton, Stateline.org (TNS)

WASHINGTON — The U.S. plans to increase the number of refugees it takes from 70,000 to 100,000 over the next two years. New York, Los Angeles and 16 other cities have urged President Barack Obama to accept even more refugees from Syria.

But is the country — along with the aid groups that help in resettlement and local communities that receive refugees — ready for an increase in arrivals? And where will the new arrivals go?

The increase could strain America’s sprawling refugee admissions program, a partnership between the federal government, international organizations like the United Nations, nine national nonprofits and their hundreds of local affiliates.

Cities and states may need to spend more money on social services for refugees, particularly if Congress doesn’t approve additional federal funding for resettlement. The Obama administration actually requested some $600 million less for migration and refugee assistance this fiscal year than it did last year.

Still, it can be done, say the groups that help refugees adjust to their new lives in America. “In 1980 we airlifted more than 200,000 Vietnamese refugees, and they are now very, very much interwoven in the fabric of our communities,” said Jen Smyers of Church World Service, one of the nine aid groups.

The United States already accepts more refugees than any other country in the world. In fiscal 2015, 13,831 people came from Myanmar alone. Other top origin countries were Iraq, Somalia and the Democratic Republic of the Congo.

Less than 1,300 refugees came from Syria, of the more than 4 million Syrian refugees registered by the U.N. The Obama administration’s announced increase in refugee admissions will include at least 10,000 Syrians in fiscal 2016.

Parceling out tens of thousands of refugees to U.S. communities takes advance planning. Each week, representatives of the nine nonprofit groups meet in the Rosslyn, Va., offices of the Refugee Processing Center, a State Department contractor. Some groups attend via conference call.

Staffers sit around a table and review a thick packet of refugee case files. The files contain the addresses of any family members the refugee wants to join in the U.S., medical information and other personal data. The nine staffers then talk through the cases and match each refugee (or refugee family) with a city and a local nonprofit that can help them adjust to new lives in America.

The U.S. defines refugees as people who cannot return to their country of national origin because of persecution or a well-founded fear of persecution due to race, religion, nationality, social group or political opinion. Before refugees are cleared to enter the U.S., they must undergo a rigorous security check to make sure they’re not affiliated with a terrorist organization or a rebel group.

To decide how many refugees to send to, say, Allentown, Pa., each year, the State Department considers how many people local nonprofits say they can resettle there. Philadelphia-based Lutheran Children and Family Service (LCFS) settled between 100 and 200 refugees in Allentown, Lancaster and Philadelphia this year; Allentown’s allotment included 39 Syrians.

Every state except Wyoming has a partnership with the federal government and local nonprofits to provide aid to refugees (and Wyoming Gov. Matt Mead, a Republican, has supported starting such a resettlement program).

In fiscal 2015, 2,288 refugees were settled across Pennsylvania, according to the Refugee Processing Center. Compared with Pennsylvania’s population, that’s not a high number. States such as Washington, Minnesota and Michigan take more refugees per 100,000 residents, according to calculations made by The Washington Post.

Allentown is a good place for refugees for a number of reasons, said Janet Panning, program director at LCFS. “Compared to Philadelphia, Allentown has affordable housing. And there are all these good employers who pay more than the minimum wage,” Panning said. It’s also a diverse town, where 40 percent of residents speak a language other than English at home, according to the U.S. Census Bureau.

Most importantly for Syrians: Allentown has a large and well-established Syrian-American population. There’s a Syrian grocery store in town, mosques and an Antiochian Orthodox Christian church. Panning can think of at least one Syrian refugee who was hired right away by a Syrian-American businessman.

LCFS tries to listen to what local leaders — political, medical and educational — say about its efforts. It also consults with Pennsylvania’s state refugee coordinator, a federal employee housed within the state’s Department of Human Services, who distributes federal grants for programs that promote employment, from job placement to day care.

Although cities and states have the opportunity to weigh in on the resettlement process, they don’t have much control over how many refugees are settled where. “We really don’t have any say, to be honest with you,” said Allentown Mayor Ed Pawlowski, a Democrat.

The mayor’s office in Dearborn, Mich. — where, according to the Refugee Processing Center, 112 refugees have been resettled this year, including 52 Syrians — told Stateline it couldn’t recall any formal discussions about refugee placement.

And once refugees arrive in the U.S., they’re free to move about the country like any other resident. Although Wyoming doesn’t have a process for resettling and supporting refugees, they are finding their way to the state anyway, Gov. Mead wrote in an editorial last year.

The big national nonprofits that select and resettle refugees have called for the U.S. to help even more people: 200,000 refugees in fiscal 2016, including 100,000 from Syria.

If Germany says it can handle 800,000 asylum seekers from Syria this year, Smyers and others argue the U.S. can certainly accept more.

Local affiliates, such as the LCFS, say they can manage the increase the Obama administration has planned. For Allentown, the about 40 percent national increase might mean 30 additional refugees.

Lutheran Social Services of Michigan — a sister organization of LCFS — expects to resettle Syrians to the Dearborn area, which also has a large Arab-American population. There may not be enough housing available to settle more refugees in Dearborn proper, so refugees may be housed in surrounding cities like Sterling Heights and Warren, said Cheryl Kohs, the Michigan group’s marketing director.

What’s less clear is where the money to resettle more refugees will come from. As of early September, the U.S. Senate planned to cut funding for migration and refugee assistance by 14 percent, while the House would leave it flat, according to CQ Roll Call.

The federal government spends a lot of money processing refugees overseas and then helping them to resettle. The State Department spent more than $3 billion to assist and process refugees overseas in fiscal 2015 (including through grants to the U.N.) and to settle refugees in the U.S. (through grants to the nine nonprofits).

The $1,975 per refugee local nonprofits receive from the State Department covers 30 to 90 days of furnished housing, help buying food and clothing, and a case manager who can shepherd refugees through what can be bewildering first days in their new country, including tasks like applying for a Social Security card.

The U.S. Department of Health and Human Services also spent more than $1.5 billion in fiscal 2015 on grants that fund employment, health and other social services for refugees and protected groups, like victims of human trafficking. Each state’s refugee coordinator receives the funds and may contract them out to community-based organizations. School districts that serve significant numbers of refugee children can also apply for additional funding through an HHS grant.

Federal aid doesn’t cover everything. “Refugees would never be able to resettle based on what’s available in the refugee resettlement pot of funding,” said Charles Shipman, state refugee coordinator for Arizona.

Private donations bolster the services local nonprofits provide. And states and local communities help pick up the tab, too, because refugees — who arrive with little more than the clothes on their backs — are immediately eligible for mainstream benefit programs like food stamps, Medicaid and cash assistance for low-income families. States play a role in funding some of those programs.

When the refugee resettlement program began, in 1980, the federal government reimbursed states for providing cash assistance, Medicaid and supplemental Social Security benefits to refugees for their first three years in the country, said Ann Morse of the National Conference of State Legislatures.

Now, the federal government only repays states for one service: providing eight months of cash and medical assistance to childless refugee couples or single adults, who don’t qualify for family-based benefits.

When refugees first arrive, they virtually all depend on government assistance. But refugees become less dependent the longer they’re in the U.S., said Randy Capps, director of research for U.S. programs at the Migration Policy Institute.

Federal benefits to refugees dry up fast, and programs are geared toward helping newcomers find jobs. When MPI researchers looked at the overall U.S. refugee population in years 2009-11, they found that refugee men were more likely to work than men born in the U.S., while refugee women were just as likely to work as U.S.-born women.

But although many refugees attain self-sufficiency, they remain slightly more dependent on government assistance than U.S.-born residents even after 20 years, the MPI report found. That may be because refugees sometimes lack the education or English skills they need to compete in the labor market, and wind up working low-wage jobs.

New arrivals from Syria, however, are likely to arrive prepared to compete. “Syrian refugees come with a lot of advantages. They’re a very well-educated population, and they often speak multiple languages,” Capps said.

Allentown’s Pawlowski, for one, isn’t worried about more refugees.

His city is among those that have said it would welcome more Syrians. Refugees arrive eager to build new lives, Pawlowski said. Many have an entrepreneurial spirit and start small businesses. On balance, he thinks the families that have arrived over the years have added to the local economy. “I welcome these refugees,” he said.

Photo: Refugees, like this Syrian woman from Deir ez-Zor, are looking for a safe place to live. (REUTERS/Dimitris Michalakis)

States To Colleges: Prove You’re Worth It

States To Colleges: Prove You’re Worth It

By Sophie Quinton, Stateline.org (TNS)

WASHINGTON — New College of Florida doesn’t offer pre-professional degrees, like nursing or engineering. Students choose the public liberal arts college because they want an intellectual experience. Many take a year off after graduation to pursue research or community service.

Yet last fall, New College opened a flashy new career center on its Sarasota campus. It needed to prove to the state that it was helping students find jobs and graduate on time, or risk losing $1.1 million in state aid. “That’s a big deal for us,” David Gulliver, media relations coordinator for New College, said of the money.

This fiscal year, Florida was one of 26 states to fund their two- or four-year college systems (or both) partly based on outcomes such as graduation rates, according to HCM Strategists, a consulting firm. Mississippi, Nevada, North Dakota, Ohio and Tennessee all spent over half their higher education budgets that way.

The idea of using outcomes — not enrollments — to guide public funding of higher education has so much bipartisan backing that both President Barack Obama and Florida’s Republican Gov. Rick Scott support it. Just last week, the Florida Board of Education approved a performance-funding system for state colleges, adding to its existing system for state universities.

It’s too early to say whether performance-based funding will drive the changes lawmakers want. But the policy so aligns with national concerns about the cost and payoff of a college education that it’s likely here to stay.

Tennessee started giving state colleges and universities bonus payments for meeting goals in certain categories, such as student performance on national exams, in 1979. In the 1990s, a handful of states set aside a small percent of funding to reward outcomes, such as degree completion. Those programs typically didn’t last long.

Then the Great Recession happened. As the economy tanked, so did state tax revenue. Almost every state cut higher education funding between 2009 and 2014, and many colleges and universities raised tuition to compensate.

College became less affordable even as Obama and governors emphasized how important it was for Americans to go. “Education is an economic issue when nearly 8 in 10 new jobs will require workforce training or a higher education by the end of the decade,” Obama said in 2010.

To get the economic benefit of a college degree, the president emphasized, students have to graduate. Fifty-nine percent of first-time college students, studying full time, who started a bachelor’s degree program in 2007 graduated in six years from that institution, according to federal statistics.

The Lumina Foundation and the Bill and Melinda Gates Foundation have added to the sense of urgency over the past few years by spending millions of dollars on developing and promoting strategies for raising graduation rates. One strategy is performance-based funding, also known as outcomes-based funding.

The men and women who oversee Florida’s 12 state universities started developing a performance funding model in 2012. “We knew we needed to come up with a different approach to get additional state support (for state universities),” said Tim Jones, a vice chancellor for the Florida State University System Board of Governors.

The Florida Legislature wanted more accountability for money spent on higher education. Both lawmakers and the board wanted to push colleges to become more efficient.

Here’s the formula they came up with: Starting in 2014, a small portion of every university’s base funding — plus any additional state money — has to be distributed according to the university’s performance on 10 metrics. Metrics include the average wages of graduates, the six-year graduation rate, the second-year retention rate and the share of undergraduates who come from families with incomes low enough to qualify for a federal Pell Grant. In 2012-13, the vast majority of Pell Grant recipients had a family income of $40,000 a year or less, according to an analysis of federal data by the nonprofit College Board.

Universities are scored between 0 and 5 points on each metric, once based on performance and again based on improvement. The board takes the higher of the two numbers for each metric and adds them up. If the university scores less than 25 points overall, it risks losing the performance portion of its base funding. If it scores above, it’s eligible to get new money. The three institutions with the highest scores get additional funds.

Other states have put much more money at stake and have built much more comprehensive formulas. While performance-based funding made up 8.8 percent of Florida’s spending on state universities this year, Tennessee allocates almost 100 percent of its higher education funding — for both community colleges and universities — through an outcomes-based formula.

“For every degree you award, it counts. For every student that accumulates 12 hours, they count. And we just simply count those up, and those are your outcomes for that funding year,” said Crystal Collins, a director at the Tennessee Higher Education Commission. “You don’t have to perform at a higher rate than you did last year; you just have to perform.”

The formula involves multiple calculations (you can check them out on the commission’s website). But basically, the state decides how much it wants to spend on higher education and parcels the money based on certain factors. A big one is whether students are progressing and graduating.

Tennessee’s model also takes into account basic operating costs and adjusts its formula based on each institution’s mission. Research universities are rewarded for spending money on research, for example, while community colleges are rewarded for connecting students with jobs.

So is performance funding making a difference? “Yes — incredibly, actually,” said Joe DiPietro, the president of the University of Tennessee. The university system has beefed up academic advising and started stressing that students take a full course load each semester, he said.

Graduation rates have risen across the university system since the outcomes-based formula was implemented in 2010. And they’re improving across the state, Collins said.

Yet researchers say it’s unclear whether performance funding is pushing up graduation rates. “We do not have as yet conclusive evidence that performance funding does indeed improve student outcomes in any significant way,” Columbia University researchers wrote last year in a working paper that reviewed models in Indiana, Ohio and Tennessee.

More statistical analysis needs to be done before researchers can disentangle performance funding from everything else that affects colleges. Decisions made by presidents and faculty, requests by accrediting agencies, grants from foundations or the federal government and public pressure can all push colleges to change. Other factors affect whether students graduate in two or four years, such as the availability of financial aid.

So far, studies haven’t found a strong link between performance funding and graduation rates. A recent analysis of Washington state’s model for community colleges found that it hadn’t much affected retention or the number of associate’s degrees awarded. Institutions were awarding more short-term certificates, credentials that don’t always have much labor market value.

The results suggest, the researchers wrote, that it may be more difficult for institutions to retain students from year to year than the designers of Washington’s formula thought.

Kevin Dougherty, the lead author of the Columbia working paper, thinks states should pay more attention to what he calls “the issue of creaming.” An easy way for colleges to improve their metrics is to raise admissions standards, potentially pushing out disadvantaged students.

About 30 percent of administrators interviewed by Dougherty and his fellow researchers for the study said restricting admissions was already happening or could happen. Colleges can also game performance-funding systems by shifting recruitment to better-prepared students, including from out of state, or by making it easier to pass classes, the administrators said.

States such as Tennessee try to address this concern by weighting the success of low-income students and other subpopulations more heavily in their formulas. “We don’t have a clear idea of how well that works,” Dougherty said.

Performance-based funding has caught on at a moment when colleges are less reliant on state money than they used to be. State funding now makes up just 29 percent of revenue for Tennessee’s universities and about 41 percent of revenue for its community college system, according to Collins.

Sean Tierney, a strategy officer for the Lumina Foundation, says the states’ growing shift to tuition to fund higher education — which rises with enrollment — strengthens the case for rewarding outcomes. “It makes more and more sense for the state to fund on a different variable, in order to help these students,” he said.

In a different world, you might imagine policymakers figuring out how much it would cost to raise graduation rates by a certain amount and fund institutions that way, says Robert Bradley, a professor at the Institute for Academic Leadership hosted by Florida State University.

Instead, performance-funding formulas take the money states want to spend and divvy it up based on productivity. And that’s exactly how lawmakers like it.

“The fact that we’ve gotten $220 million over the past two years, three years, shows the belief that our policymakers and the legislature and the governor’s office have in what the board is doing,” Florida’s Jones, the CFO, said of his state’s formula. “It’s very likely that we wouldn’t have gotten the money without this model. So I think folks are happy, because they are getting funding for this.”

Photo: A building at the New College of Florida. Traditionally a liberal arts school with a focus on intellectual inquiry, the school built a new career center to signal to the government that, as a public institution, it is worth $1.1 million in state aid. Flickr/Larry Miller