Performance-based funding models for higher education, which tie state support for institutions to performance on student outcomes, have proliferated in recent decades. Some states have designed these policies to also address educational attainment gaps by including bonus payments for traditionally low-performing groups. Using a Synthetic Control Method research design, we examine the impact of these funding regimes on race-based completion gaps in Tennessee and Ohio. We find no evidence that performance-based funding narrowed race-based completion gaps. In fact, contrary to their intended purpose, we find that performance-based funding widened existing gaps in certificate completion in Tennessee. Across both states, the estimated impacts on associate degree outcomes are also directionally consistent with performance-based funding exacerbating racial inequities in associate degree attainment.
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