The Tennessee Higher Education Commission (THEC) voted 9-1 on Thursday to approve changes to higher education funding that supporters argue will better support good-paying, in-demand career pathways.¶
The changes update the state’s Outcomes-Based Funding (OBF) formula, which provides financial incentives to institutions based on how well they help students succeed.¶
What is the OBF
The OBF revolutionized the way higher education was funded in 2010 by creating incentives for institutions to award credits, graduate students on time, or, for two-year community colleges, transfer students to four-year institutions. In 2022, Tennessee added a Workforce Investment Premium to the formula to provide additional incentives for institutions to award degrees with the potential for a greater return on investment.¶
That incentive is currently largely limited to STEM (science, technology, engineering, and math) and healthcare undergraduate programs, but Julia Hoffman, THEC Director of Fiscal Policy, told commission members earlier this week that those fields are no longer enough.¶
“We heard from stakeholders that STEM plus healthcare is not an accurate representation of what our workforce actually needs in 2026 and beyond,” said Hoffman.¶
How the Workforce Investment Premium Will Change
To address those workforce needs, THEC approved changes that will eventually remove funding from programs that aren't in demand and strategically direct it to fields where jobs are needed and growing.¶
To qualify for Workforce Investment Premium, education programs must now:¶
- Lead to a career with median earnings of at least $43,196 after five years.
- Have a job growth outlook of at least 0.8 percent.
- Or be eligible for the Workforce Pell Grant.
Under the changes, THEC would additionally create an annual process for institutions to nominate programs for the incentive that meet a regional workforce need or are experiencing increased student interest.¶
Hoffman told commissioners that THEC set the $43,196 earnings threshold using MIT’s living wage calculator for an individual with no children.¶
“We understand that living wage is a little bit different in different areas of the state and that’s why we chose to keep this at the lowest threshold as a starting point for this metric,” said Hoffman¶
Positive Reaction
THEC’s approved changes to the Workforce Investment Premium were supported by education thought leaders, including organizations Tennesseans for Student Success and Tennessee SCORE.¶
Both organizations issued news releases following the vote, applauding the potential impact these changes will have on students' lives after graduation.¶
“Tennessee's Outcomes-Based Funding formula has done a lot of good for our students over the years, but the job market doesn't stand still, and our funding priorities shouldn't either," said Lana Skelo, TSS President and CEO. "These updates to the Workforce Investment Premium bring the formula in line with where Tennessee's economy is headed, steering students toward the programs that offer the strongest opportunity and long-term earning potential, while making sure our graduates have the skills employers are actually looking for in the jobs of tomorrow."¶
The Tennessee Firefly is a project of and supported by Tennesseans for Student Success.¶
The Road Ahead
SCORE additionally made the case for additional “practical tools” to help ensure the OBF changes are implemented successfully, including four recommendations for state leaders:¶
- Establish a statewide goal for increasing the number of Tennesseans who earn impact credentials and regularly track progress toward that goal. Through TN2030, SCORE and partners across the state are working toward a goal of 64 percent of postsecondary students completing a degree, with 75 percent of those earning impact credentials by 2030.
- Strengthen coordination between education and workforce data systems to improve transparency and help students make more-informed decisions about educational pathways.
- Consider labor market returns when designing state financial aid programs and investments to ensure more students have access to pathways that lead to economic independence.
- Better align K-12 advising, dual enrollment, work-based learning opportunities, and industry credential attainment with workforce needs and impact credential goals.
Tennessee is required to conduct a comprehensive review and update the OBF every five years.¶
