While some schools are making changes to boost student outcomes, Finney says it is too early to know how institutions will change in the long term in response to performance-based funding. "Strong state-level data systems are necessary to determine changes in performance and to make adjustments accordingly," she says. "States vary in terms of the sophistication of their student unit record systems. This must be carefully aligned with the outcomes they hope that institutions will strive for."
"Any financial policy involves a series of trade-offs," says Tennessee's Deaton. While he and other state education leaders believe the positives of performance-based funding "far outweigh the negatives," he also says "until the model is road tested, you don't know for sure how it will work out."