This week, the Tennessee Higher Education Commission’s (THEC) Statutory Review Committee will discuss potential changes to the Outcomes-Based Funding Formula (OBF).¶
The formula was first implemented in 2010 and revolutionized the way higher education was funded. Rather than funding institutions solely based on how many students were enrolled, the formula created incentives for schools to award credits, graduate students on time with degrees, or for two-year community colleges, to transfer students out to four-year institutions.¶
In 2022, the formula was further improved with the addition of a Workforce Investment Premium. This provided additional incentives for institutions to award degrees with the potential for a greater return on investment, such as STEM and healthcare-related programs.¶
This makes sense—most students pursue higher education because they believe the degree or credential will translate to greater opportunities and earnings. If institutions have greater incentives to invest in high-ROI programs, more students will have the opportunity to enroll in these programs, graduate, and move into a good-paying career.¶
While the first iteration of the Workforce Investment Premium was a step in the right direction, it is worth revisiting. After all, there are numerous career pathways outside of STEM and healthcare that are in high demand across industries and translate into high earning potential.¶
Thankfully, a key feature of the OBF is that the formula is subject to continuous revision on a five-year cycle. This allows THEC, institution leaders, and lawmakers to periodically assess what is working in the program and what may be due for an adjustment.¶
Revised Incentives Will Encourage Higher-Paying Jobs
As the formula will undergo its third revision this year, potential changes to the workforce investment premium have been proposed that would consider the median earnings for careers aligned to a particular program and projected job growth in that field. In addition, credentials that can be progressively built on with other more advanced credentials may qualify for the premium.¶
These proposed changes follow a logical trajectory in the formula’s history of increasingly targeting the state’s investment toward programs that provide students with the most opportunity and long-term earning potential. Rather than the “shotgun approach” of assigning the premium to all programs within a given field, the proposed revision will look at all programs individually and assess their ROI based on objective data.¶
Many institutions could stand to gain substantial incentives through the revised premium, as the new list would now include some of the most widely chosen programs among students, such as business, finance, marketing, and psychology.¶
Further, institutions would be permitted to apply for waivers that would add programs to the list of those qualifying for the premium if the program is aligned to a regional workforce demand.¶
Though some STEM and healthcare-related programs would be eliminated from qualifying for the premium under the proposed changes, many of the most common and fastest-growing programs will remain intact, such as nursing, biology, nuclear engineering, and computer science.¶
THEC’s proposed revision to the Workforce Investment Premium represents a positive development in the dialogue around higher education policy. Targeting state investments towards programs that give students the best opportunities after graduation will both directly benefit our students and support the continued economic growth of our state.¶
