Texas is at the frontier of state community college funding with a new formula that puts big money into student outcomes—including employment and earnings—rather than just enrollment.
The bill, known as HB 8, was passed last year, and already community colleges are gaining millions of dollars more in funding. With this money, they are designing new programs and investing in student success efforts like tutoring. One district—Austin Community College—has even made tuition free in an effort to eliminate roadblocks for students.
Several other states have already reached out to the Texas Higher Education Coordinating Board, expressing interest in the formula.
The Big Idea: The bill is sweeping, shifting from only 10% of funding based on student outcomes in the old formula to 95% in the new formula. Metrics for student success include the number of students who transfer to four-year institutions and the number of high school students in dual enrollment programs. Extra funding is awarded for students who earn credentials in “high-demand” fields and for enrolling low-income and adult learners.
A critical piece of the legislation that makes it stand out compared to other states is its focus on awarding “credentials of value,” defined as degrees, certificates, or credentials that “offer purpose in the economy, value in the labor market, and opportunities for good jobs and meaningful careers.” The state uses unemployment insurance data to track students’ return on investment for credentials they earned within 10 years following graduation. If at least half of the graduates achieve a positive return on investment, the credential is determined to be “of value.”
While the intention of awarding colleges money on how well their students do in the job market after graduation is innovative and student-centered, implementing it has proven to be a challenge.
To start, Texas is a big state, and what makes a credential valuable can vary depending on the region, according to Jorge Borrego, the K-12 education policy director for the Next Generation Texas initiative at the think tank Texas Public Policy Foundation, which supported the new legislation. For example, an HVAC or Google certificate would have high value in Austin, the tech center of the state. In East or West Texas, credentials in oil, gas, or manufacturing might be more valuable.
“We have to be more specific on the different aspects of ‘credentials of value,’” Borrego says. “We have the ones that have a really high return on investment, and then we have those that are very high-demand, and then we have those high-wage occupations. As more data emerges from a more granular level, as opposed to the state level, I anticipate that there will be more of a refinement of those credentials of value to each region.”
The extra funding awarded for credentials in “high-demand” fields is one area that already varies by region, according to Mike Eddleman, a communications specialist for the coordinating board. There is one statewide list and 12 regional lists of high-demand occupations corresponding with the Texas comptroller’s 12 economic regions.
Cautious Optimism
Under the new funding formula, no community college in the state saw a decrease in funding in the first year. All but one district saw increases—many quite substantial.
“The legislature made an effort to increase the funding for the formulas and ensure there wasn’t a drop off, at least in the first few years for the community colleges as they’re making this transition,” says Rahul Sreenivasan, a policy advisor at the think tank Texas 2036, which supported the bill. “I think that softens the blow a little bit and allows them to have time to be able to adjust.”
On the Ground: Grayson College in Denison, in northeast Texas, received an additional $1.1M in performance-based state funding in the first year since the passage of HB 8, reversing a trend in declining state funding in previous years. The community college, which typically enrolls around 4K students, grew 8% last year, partly due to the growth of the semiconductor industry in the area.
The new funding model can better equip the college to get ahead of the curve, educating students to work in the new manufacturing plants while the plants are still being built, says Grayson’s president Jeremy McMillen. That’s because the new formula is meant to be dynamic, assessing credentials of value in high-demand fields not just on past performance but also on industry growth.
“We have found ourselves adding programs to continue to meet the growing need that we see in our community,” McMillen says. “In the old model, we would’ve, in some cases, not seen funding from the growth in enrollment for two or three years, which, at the rate we’re moving, is very challenging.”
Getting state funding faster is a huge help for colleges like Grayson, which created a program last year to train workers at the semiconductor company Texas Instruments. The college has spent about $1M for equipment alone to train two dozen people.
Larger community colleges are using the influx in funding to keep students on the path to earning credentials that will get them well–paid jobs after graduation. The Alamo Colleges District saw an increase of $25M in performance-based state funding last year. With the extra money, the district has invested in things like math tutoring, a subject that challenges many students in their first semester and gets them off track.
In the last five years, Alamo has created 30 new degree programs aligned with local workforce needs in industries like health, manufacturing, and cybersecurity. Chancellor Mike Flores says he anticipates that all of these programs, which are focused on high-demand and high-wage jobs, will qualify as “credentials of value.” While the district had already developed most of these programs, the new funding formula has accelerated their development.
Third-Party Credentials: The Austin Community College District made waves when it used its increased state funding—$7M in the first year—to make tuition free for all incoming direct-from-high-school students. With the new funding formula, the district is also looking at investing in other programs that were less of a priority previously, such as partnerships for third-party credentials, says Jenna Cullinane Hege, the district’s vice chancellor of institutional research and analytics.
“That is not something ACC had a history of doing systematically,” Cullinane Hege says. “We’ve had some more informal arrangements with a couple of departments who were interested in it, especially around digital literacy. We’ve had some short-term badges. But the new funding formula is really challenging us to look at it more. It’s back on our radar in a big way because of the policy.”
Other states have tried out outcomes-based funding formulas in the past, but with limited success, says Preston Cooper, a higher education policy researcher and former senior fellow at the Foundation for Research on Equal Opportunity. This is partly because the funding is inconsistently applied and partly because it only makes up a small share of overall college funding.
“It has been very focused on students completing a lot of credentials without necessarily looking at whether those credentials are worth anything in the labor markets,” Cooper says. “The Texas approach is trying to correct some of those problems that we’ve seen, particularly with their focus on credentials of value.”
Pushback: Community colleges and advocacy organizations have so far been optimistic about the new funding formula and overwhelmingly see the change as positive. But some questions remain about how much the formula actually emphasizes employment outcomes over attainment.
Michael Bettersworth, senior vice chancellor and chief marketing officer at Texas State Technical College, says he hesitates to call HB 8 an “outcomes-based funding model” as it currently stands. TSTC has its own unique funding model, which awards the institution state funds based on students’ earnings after leaving. HB 8 awards funds based on things like attainment of credentials of value. While both models are aimed at getting students quality jobs, they differ.
“TSTC’s funding model is based on placement and earnings,” Bettersworth says. “If they don’t get a job, we literally do not get paid. … A financial model that incentivizes enrollment absent some accountability of the outcome is a perverse incentive, and it drives the wrong behavior.”
What’s Next?
While HB 8 went into effect last year, experts say it may take a few years at least to determine the best way to define the value of various credentials and to see the true impact. Data is one area that’s likely to see some improvements.
For now, the funding formula uses unemployment insurance data to help define the financial value of jobs. Conversations with regional employers bring insight about which jobs are in high demand. Colleges also have their own data on student outcomes. But there isn’t one standard set of data to provide a holistic picture.
Austin Community College is building new dashboards for each department, so eventually they’ll be able to see how many credentials the department is awarding and how much state funding they’re getting as a result.
“We’re working on making sure that it’s actionable data, so departments can look at it and think about and set their own goals,” says Cullinane Hege.
Another challenge moving forward will be aligning students’ interest and employment needs when determining what a credential of value is.
Kristin Boyer, executive director of the Trellis Foundation, which focuses on equitable outcomes for Texas students, says questions remain about credentials like early childhood certifications. For students, it’s hard to call these credentials of value if the wages they’ll make after attaining them are not sustainable or livable. At the same time, it’s a critical need for many communities.
Other policy experts like Sreenivasan say they are keeping an eye on how the definition of “credentials of value” changes over time, making sure it doesn’t get watered down and that it stays in the students’ best interest—not just the institutions’. Overall, however, both he and Boyer feel like the new formula is full of hope for the future.
Parting Thought: “I feel like how we restructured community college finance is going to be very good in terms of trying to meet these future workforce needs and emerging industries, but then also in terms of reskilling and upskilling in existing work,” Sreenivasan says.