Frederick Hess and Cody Christensen explain at National Review Online why observers should approach performance-based higher education funding models with skepticism.

Currently, 32 states allocate a portion of their higher-education funding based on educational outcomes. Ohio, for instance, allocates more than half of its funding to colleges based on how many students earn degrees. Other common metrics including retention and job-placement rates.

There’s a lot to like in these efforts. For one thing, they have been fueled by state policymakers rather than mandates from Washington. For another, at a time when tuition costs keep rising and concerns about academic quality keep proliferating, performance-based funding could bring healthy accountability to higher education. …

… So, what’s the problem? Well, the truth is, these funding systems are more alluring in theory than in practice. Unless engineered with great care — not the kind of thing for which New York Times–endorsed reform crusades are known — they can reward colleges for the wrong things. After all, not everyone who starts college should finish. Urging colleges to issue degrees to students who can’t or won’t do the requisite work is a recipe for wasteful, costly degree inflation. Indeed, encouraging colleges to find ways to graduate more students, whatever it takes, can incentivize them to churn out watered-down degrees or admit only the students who seem like the safest bets.

As No Child Left Behind and the recent spate of graduation-rate scandals have made all too clear at the K–12 level, an undue focus on reaching crude benchmarks can lead educators to cut corners or manipulate data. The pressure to graduate students, for example, can lead to lower standards, grade inflation, and even outright fraud.