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Higher education funding needs an innovation makeover–here’s how

How can states and institutions redesign funding models to better support student outcomes and new innovations in practice and services?

funding-innovation-campusFrom new student learning pathways to questioning the merit of the credit hour, and from the move to enterprise cloud solutions to online learning models, colleges and universities are in innovation warp drive. Unfortunately, most funding models are stagnating under antiquated institutional and state-based policies.

How can institutions restructure financial policies and models to support the innovation required of them?

From an in-the-trenches perspective, Paige Francis of Fairfield University argues that nowhere is innovation most prevalent, or critical, than in IT, and that only when institutional budgeting transitions from capital expenditures to operational dollars will funding be “as nimble as the technology it supports,” and able to support innovation:

“We are moving toward a more hosted technology environment, which enables our IT workforce to focus more on refining processes and procedures, empowering us to work smarter and harder on things that have an impact on an institution’s core mission and bottom line.

With this trend comes a very real problem. Current expenditures formerly known as capital are now operational. Cloud, out-sourced, remote solutions all typically involve a subscription or routine monthly/annual fee. Not unlike technology as a whole, individual technology solutions today are pervasive, day-to-day, integrated products and services.

In other words, technology is primarily operational.

In a world where suddenly it’s not unheard of for a university’s technology offering to directly impact recruiting, attracting and/or retaining students, technology matters more than ever. If a higher education institution is not willing to morph its technology funding model to be as nimble as we want our technology to be, IT leaders will be forced to continue with legacy systems, regardless of whether or not they further innovation or support the school’s core mission.

Therefore, the question becomes, “How can funding models be improved so that they support, rather than thwart, innovation?”

There exists no single pill that will remedy our legacy funding models. It is, however, as easy as 1-2-3 to begin an internal dialogue to reform the process within each institution…” Read more of Francis’ piece on this month’s Symposium.

(Next page: Rethinking state funding policies for innovation)

From a broader state policy approach, Martha J. Snyder, a senior associate at a public policy advocacy and consulting firm, believes that only when states restructure their funding models to leverage state appropriations toward innovation and support outcomes-based funding will colleges and universities have the ability to successfully implement innovative strategies toward student success:

Financing locks in how we deliver, and who delivers, education with no financial rationale for acceleration or collaboration.

Below I focus primarily on state general operating support to institutions, but there are other finance policies that can be examined and better aligned to support adoption of innovative academic models. These include changing institutional tuition and state financial aid policies to support students to take competency-based programs. For example, differential and flat-rate tuition policies can charge students in more flexible ways than purely by credit hours completed.

1. Leveraging state appropriations to advance innovation

This single source of revenue for public institutions generally makes up a greater proportion of revenue for comprehensive or regional four-year institutions and community colleges than that of high-level research universities.

The relatively decreased proportion of revenue from state dollars makes the imperative greater for the state to direct its investment more significantly in a way that will support state priorities and advance objectives not already covered by other revenue sources institutions receive. In simple terms, this would mean states more directly invest in completion of programs and degrees and not solely on FTE or a constant base-plus approach (generally disconnected from any state policy objectives).

2. Outcomes-based funding to support innovation

In an effort to address some of these underlying challenges, several states are turning to a concept called outcomes-based funding. The concept is an evolved and refined form of performance-based funding models, inherently meant to provide incentives for institutions to support completion of degree programs, as well as other priorities, such as enrollment and completion of underserved student populations (for example, adult, low-income, minority).

Outcomes-based funding that results in a significant portion of the state’s investment allocated based on degree or program completion, as well as the success of underserved students, can more directly support the adoption of innovative academic delivery models. Directing a significant source of revenue based on degree completion can change the underlying business model for institutions and create a financial incentive that does not otherwise exist:

  • Support advancement and timely completion of students. These models can help to decouple an institution’s revenue from a purely enrollment incentive. As a result, there is an underlying financial incentive for institutions to restructure academic programs, or adopt more expansive innovative models that help students advance more quickly through programs. Articulation of transfer credit would have a greater financial return for institutions in an outcomes-driven environment so long as the “lost cost” from tuition revenue is offset by returns in state dollars. Similarly, competency-based models would be less costly (and have greater return) for institutions as they would support the advancement and more timely completion of degree programs.

Read more of Snyder’s piece on this month’s Symposium.

We also welcome your thoughts on these two essays on Symposium in the comment section. Let readers know how you feel about funding innovation in higher education.

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