Innovative Funding Models for College

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The current funding model for higher education is pay-for-enrollment, meaning that colleges receive money for every student they enroll. That money may come from the student, a parent, a scholarship provider, or a government, but the school gets to keep it—even if the student fails their courses, drops out after the end of the semester, doesn’t go on to finish their degree, or isn’t able to use their education to get a job that enables them to pay off their loans.

Pay-for-enrollment isn’t the only way. There are other options to structure how we pay for college. Most of them involve paying schools for some sort of outcome. Outcomes-based funding models could change institutional behavior in ways that benefit students—and could replace a complex and arcane regulatory framework that has limited innovation, and been ineffective at protecting students and taxpayers from waste, fraud, and abuse.

Policymakers should embrace new funding models; incentives will drive institutions to innovate in ways that benefit students far more effectively than a long list of rules ever could. The authors of the next Higher Education Act (HEA) reauthorization cannot reasonably be expected…


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