ICHE unveils new outcomes-based performance funding model
Indiana is preparing to replace its previous broad and complicated higher education performance funding system, adopted three years ago, with a model centered on a single outcome: whether an Indiana student completes a degree or credential.
The Indiana Commission for Higher Education unanimously approved the redesigned outcomes-based performance funding formula July 23 for use in developing the state’s fiscal 2028-29 higher education budget. The framework provides a base payment for each qualifying credential earned by an Indiana resident, then adds funding when the credential meets the state’s affordability, access, and workforce-alignment priorities.
The change strips away much of the structure the commission adopted in 2023, when it attempted to measure college performance through 13 metrics covering enrollment, student progress, degree completion, graduate retention, and research.
Under the new system, none of the additional factors generate funding unless a student first completes a credential.
“What matters most” is whether a student who accepts the cost and time commitment of higher education reaches the goal that brought the student there, Secretary of Education Katie Jenner explains. “That is the completion, the educational attainment that that person will gain,” she adds.
The new formula is simpler on paper . . . but its exact financial impact remains undetermined. The commission has not assigned dollar values to the different credentials, established the total performance funding appropriation, or determined how much of each institution’s state support will flow through the model.
Those decisions ultimately rest with the General Assembly during the 2027 legislative session, when lawmakers will draft the next biennial budget.
Legislative fiscal leaders, since ICHE adopted the original funding model in 2023, had scrutinized the model for its complexity and, in their view, lack of true focus on outcomes. When the state faced a tough fiscal outlook in 2025, legislators opted not to fund the performance model in 2026 and 2027.
Another Attempt at Outcomes-Based Funding
The commission’s latest overhaul follows a short and largely unrealized first attempt under a law enacted in 2022.
SEA 366-2022 directed the commission to create an outcomes-based operating funding formula aligned with Indiana’s long-range higher education plan. The law required the commission to approve a formula by October 1 of each even-numbered year before lawmakers write the next biennial budget.
Commission members adopted the first set of metrics in January 2023 after an accelerated development process that drew support from several universities . . . but concern from Ivy Tech Community College, which we reported in our January 20, 2023 issue.
That formula divided performance funding among four broad categories. Enrollment outcomes accounted for 30% of the model. Completion represented between 50% and 55%, depending on the type of institution. Graduate retention received 15%, while research accounted for five percent at Indiana University Bloomington and Purdue University’s West Lafayette campus.
The enrollment category included the college-going rate among recent high school graduates and adult enrollment. Completion was broken into several measures, including on-time, overall, at-risk, STEM, and adult completions. The percentage weights varied among research universities, other four-year campuses, regional campuses, and Ivy Tech and Vincennes University.
The model attempted to serve several state goals at once: restoring the college-going rate, increasing adult enrollment, raising postsecondary attainment, improving graduate retention and expanding research activity.
And that model also depended on institution-specific stretch goals. Colleges could receive funding based not simply on the number of students reaching an outcome, but on progress toward negotiated performance targets.
The approach was intended to be more comprehensive than Indiana’s earlier performance funding system. In practice, ICHE staff now conclude that the multiple metrics made it difficult to understand, communicate, and connect to a specific student result.
Cody Robison, the commission’s deputy chief financial officer, describes the difference this way – the 2023 formula evaluated 13 separate measures involving progress, completion, and other results, while the new model reduces the system to one core metric that nearly anyone can understand: a completed credential.
“Everything else kind of flows around that,” Robison explains.
Original Formula Met Resistance
The 2023 framework encountered questions even before the commission adopted it.
You may recall former Ivy Tech president Sue Ellspermann at the time urged commissioners to delay their vote, arguing that institutions had too little time to examine the metrics and their weights. She questioned whether the proposed measures properly reflected part-time learners, apprenticeship participants and short-term workforce credentials.
One concern involved the high school college-going metric, which focused on first-time, full-time Pell Grant recipients. Dr. Ellspermann warned that the measure could undercount students who attend part-time while working, serving an apprenticeship or completing employer-connected training. She also objected that high-wage industry certifications were excluded from the completion metric, even though Ivy Tech awarded thousands of them and employers view them as essential to filling workforce shortages.
The new formula responds to several of those objections.
The model recognizes sub-associate credentials, including certificates and technical certificates, and permits performance funding for certain industry-recognized certifications. The Ivy Tech version also treats a part-time student as completing on time when the student finishes within 1.5 times the intended program length.
Credentials earned by students while still in high school –including the Indiana College Core – also qualify for funding under the new framework.
The 2023 plan was paired with a recommendation for substantial increases in higher education operating support. At the time, the proposal contemplated a 6.0% operating increase in fiscal 2024 and an 8.0% increase in fiscal 2025.
But the outcomes-based portion remained a small share of Indiana’s overall higher education spending those years.
Performance funding represented about 1.0% of the state higher education funding package in fiscal years 2024 and 202525. Base operating support accounted for 59%, state financial aid 16%, capital line items 12%, debt service six percent, operating line items four percent, and repair and rehabilitation two percent.
The General Assembly then provided no appropriation for the performance formula in the 2026-27 biennium . . . and slashed total higher education funding allocations by 5.0%, in addition to requiring institutions to hold back another 5.0% each fiscal year.
The lack of current funding for outcomes-based performance gave the commission an opening to reconsider the formula before lawmakers decide whether to revive funding for it.
Feedback collected by the commission identified three problems: the system did not appear to be changing institutional behavior, it was not focused tightly enough on actual outcomes, and it was too complicated to explain.
The commission also heard calls for greater recognition of the different missions of campuses, more recent data, and a model that remains stable enough for colleges to plan around it.
Dr. Jenner also pointed to pressure from lawmakers, particularly Sen. Chris Garten (R) of Charlestown, vice chair of the Senate Committee on Appropriations, who questioned whether a formula labeled “outcomes-based” should reward enrollment or intermediate progress instead of completed outcomes.
How the New Formula Works
Public institutions first earn an attainment payment for each eligible degree or credential completed by an Indiana resident during the most recent academic year.
Different credentials receive different dollar values. The commission places them in four tiers:
– Sub-associate credentials, including certificates
– Associate degrees
– Bachelor’s degrees
– In-demand graduate degrees
The dollar signs in commission materials only indicate that the credential levels will carry different payments. They do not establish a specific ratio among them.
The four-year formula applies to Indiana’s public universities and to Vincennes University’s bachelor’s programs. A separate version covers Ivy Tech and Vincennes University’s sub-associate and associate programs.
An institution generally receives credit for the highest credential a student earns within the same subject area during a year. The commission plans to distinguish fields through six-digit Classification of Instructional Programs codes.
If a student earns credentials in different subject areas, the institution may receive funding for each. If the student earns multiple credentials in the same subject area, only the highest one counts.
That replaces the 2023 formula’s collection of weighted measures and institution-specific goals with a transaction that is easier to follow. A qualifying Indiana student completes a credential, and the institution earns a base amount.
After earning the base attainment payment, four-year institutions may receive bonuses based on three categories: affordability, access, and alignment.
The affordability bonus equals 35% of the base payment and applies when at least one of the following is true: the institution remains within the commission’s tuition and fee recommendation for the intended duration of the program; the student completes the credential on time; or the student completes it early.
The access bonus equals 25 percent. A credential qualifies when it is earned in high school, links to a stackable Transfer Single Articulation Pathway, includes an embedded stop-out credential, is awarded through reverse transfer, or is earned by a state financial aid recipient, such as a 21st Century Scholar or Frank O’Bannon Grant recipient.
The alignment bonus equals 40 percent. This applies when a credential includes meaningful work-based learning connected to employer needs, falls within a targeted workforce field or scores at least a 3 on Indiana’s Credentials of Value list.
An institution needs to meet only one condition in each category. Because the three multipliers total 100%, the formula appears to allow a qualifying credential to earn bonus funding equal to its base payment.
The bonuses preserve some of the policy objectives embedded in the older formula (supporting low-income students, improving on-time completion and responding to workforce demand) but attach them to a completed credential rather than treating them as independent performance measures.
“The way funding is earned for our institutions is first by the production of credentials and the earning of credentials by students,” Robison tells commissioners. “And if those credentials have these attributes within these different buckets, they can earn additional funding as well.”
Ivy Tech Receives a Separate Model
State law requires a separate formula for Ivy Tech. The commission also applies it to Vincennes University’s sub-associate and associate programs.
This formula provides a 30% affordability multiplier, a 20% access multiplier and a 50% alignment multiplier. The larger alignment weight reflects Ivy Tech’s role as a workforce training institution. The model places half of the available bonus on programs connected to employer demand, work-based learning or credentials with demonstrated value.
The new version also addresses the concern raised in 2023 about part-time students. A part-time student may complete a credential within 1.5 times the program’s intended length and still qualify as an on-time completion.
Select industry-recognized certifications on the Credentials of Value list may earn a base attainment payment, although they are not eligible for the multipliers. That is a notable departure from the first formula, when Ivy Tech objected that valuable certifications filling immediate labor needs were not included in the completion calculation.
Faster Rewards, Less Data Lag
The commission also intends to use more recent data going forward.
Under the 2023 formula, the information determining an institution’s award could be two to four years old by the time the state delivered the funding. The delay weakened the connection between institutional decisions, current student performance, and the financial incentive.
“We’ve got to tighten it up so that the outcomes we’re producing, the incentive is very, very fast and the return is very, very fast,” Secretary Jenner asserts. “So again, we can keep reinvesting that money into the students who are in higher ed today.”
Older data did provide institutions with greater budget predictability. Colleges had more time to anticipate how their results would affect state support.
Robison acknowledges that the commission must preserve that stability while shortening the delay. He attributes part of the improvement to better state data systems and tracking capabilities.
The underlying data used to calculate institutional earnings must be audited every two years.
The new framework is easier to explain than the model adopted in 2023, but it still depends on definitions that could shape potentially millions of dollars in future distributions.
The commission must determine what qualifies as meaningful embedded work-based learning, which degrees count as targeted fields, and how often programs move on or off the Credentials of Value list. The body also must decide the relative worth of credential levels. Depending on how the payment amounts are structured, the formula could favor institutions producing large numbers of short-term credentials, universities awarding bachelor’s degrees or campuses offering expensive graduate programs in designated fields.
The 2023 formula attempted to account for differences among institutions through separate metric weights and negotiated stretch goals. The 2026 version instead provides institutions with several ways to earn the same category bonuses.
A research university might qualify through targeted graduate programs and embedded internships. A regional campus could rely more heavily on state aid recipients, transfer pathways, and on-time completion. Ivy Tech can use its separate weighting structure to emphasize workforce alignment.
Robison portrays that flexibility as a way to recognize institutional missions without returning to a long list of separate measures. “We’ve kept things simple, and even in this simplicity, we’ve developed a way for institutions to reflect their different and unique missions,” he remarks.
Hoosier Students Remain the Focus
Key in the formula is that only credentials earned by Indiana residents qualify. Dr. Jenner points out that is intentional because Indiana residents attending an in-state public college are more likely to remain in the state after graduation than students arriving from elsewhere.
“Students coming from other states are significantly more often exiting. We certainly need to work on that, but … we are laser focused on our Hoosier students,” Dr. Jenner adds.
This aspect also could continue to push Indiana’s higher education institutions to more heavily recruit in-state students. We saw efforts from lawmakers in previous legislative sessions to try to incentivize universities to enroll more in-state students, in light of some schools, such as Purdue University, growing out-of-state student populations.
Indiana residency was also part of the earlier formula, which included graduate retention as a separate 15% category. The new model removes that metric. Dr. Jenner attributes the decision partly to the difficulty of obtaining consistent and timely interstate data. The commission wants the funding calculation to rest on its own state information it considers precise and auditable.
Legislature Decides Whether Redesign Matters
While the commission’s adoption of the new formula structure is significant, lawmakers are truly in charge of whether it will matter financially to state institutions.
ICHE staff will next take the proposal to the State Budget Committee before higher education budget hearings begin at the end of this year. The commission then will incorporate the formula into its broader funding recommendation for the 2027 legislative session.
Legislative leaders and budget architects will determine the appropriation and the dollar amount assigned to each credential level.
Until then, institutions cannot calculate the potential effect on their budgets or determine whether the incentives are large enough to influence tuition, academic programs, student advising, transfer arrangements or employer partnerships.
Dr. Jenner expects greater legislative interest in making performance funding a meaningful portion of state support, with this new, simpler model that seems to resolve much of lawmakers’ original criticisms.
“While one percent was kind of the number in the past, and zero most recently, I would expect that to go up significantly,” she informs commissioners. “Obviously, it depends on the budget forecast.”
She adds that she feels confident in this new model’s place with leaders who were the sharpest critics in the past.
“Some of the individuals who had the strongest, very smart questions, quite frankly, of us in the past, we reviewed those questions. We called those specific legislators and talked through ‘what are your thoughts?’” Dr. Jenner describes. “So we are, you know, there’s so many unknowns in six months in the world we live in. But in the place that we are today, we are in a very good position in terms of support from leadership.”