Texas Looks to Expand Outcomes-Based Funding to Four-Year Institutions

Texas is preparing to extend one of its most consequential higher education funding experiments from community colleges to four-year universities. But as state policymakers consider tying more public dollars to student outcomes, the early results from Texas’ community colleges offer a cautionary lesson: Colleges responded to the incentives faster and more successfully than lawmakers anticipated—and the state was not prepared to pay for the results.

On July 22, the Texas Higher Education Coordinating Board recommended a new performance-based funding model for the state’s public universities. The proposal would supplement, rather than replace, the existing funding system, with 60% of the new performance funding tied to students earning a “credential of value” and 40% tied to measures of academic progression and persistence, including reaching 30-, 60- and 90-credit milestones and returning from one fall semester to the next. The proposal also calls for incentives tied to high-demand fields and historically underserved students.

The recommendation will go to the Texas Legislature when it convenes in January 2027. It is the next step in a broader state strategy that has been years in development.

Texas lawmakers directed the coordinating board to study performance-based funding for four-year institutions as part of the state’s 2026-27 budget. The study was conducted by an executive committee made up of representatives from the state’s public university systems and Texas Southern University.

A July report from Texas 2036, a policy organization that has been closely involved in the state’s education-to-workforce agenda, makes the larger trajectory unusually explicit. It describes House Bill 8, which overhauled community college funding in 2023, and Senate Bill 1786, passed in 2025, as a “coordinated strategy” to reward student success, strengthen program quality and build a workforce system. The report identifies moving four-year universities to an outcomes-based model as the “next frontier.”

The community college experience, however, raises a question for the next phase of that strategy: What happens when the incentives work?

Texas replaced its largely enrollment-driven community college funding system with a model that ties state dollars to three primary outcomes: dual-credit completion, transfer to a four-year institution and completion of credentials of value. The formula also provides additional weight for outcomes among economically disadvantaged students, academically disadvantaged students and adult learners.