Indiana approves new college funding formula, but lawmakers still control the money

Indiana approved a new college performance-funding framework July 23, but the decision does not immediately send new money to public colleges or universities. The size of any funding pool remains undecided and will depend on review by the State Budget Committee and action by the Indiana General Assembly.

The Indiana Commission for Higher Education voted unanimously to adopt the revised Outcomes-Based Performance Funding formula. The framework is designed for Indiana’s public higher education institutions and is scheduled to operate for two fiscal years beginning with fiscal year 2027-28.

The commission plans to present the framework to the State Budget Committee in fall 2026. Lawmakers will ultimately decide whether to appropriate money for performance funding and how much to distribute.

Completed credentials become the main measure

The revised formula puts credential and degree completion at the center of the system. It separates outcomes into categories including sub-associate credentials, associate degrees, bachelor’s degrees and in-demand graduate degrees.

The framework does not establish a dollar value for each credential. Any award amounts will depend on the size of the performance-funding pool and the state budget process.

Only degrees or credentials earned by Indiana residents qualify for the core additional funding opportunity. The rule therefore is not based simply on every student enrolled at an Indiana public institution.

Three areas can create additional funding opportunities

Beyond credential completion, institutions may qualify for additional performance-funding opportunities in three areas: alignment with workforce needs, affordability and access.

Alignment examples include credentials with meaningful embedded work-based learning, credentials in targeted fields and programs that perform well on Indiana’s credentials-of-value measures. Workforce alignment is a funding criterion; it does not guarantee that every qualifying program will lead to a job.

Affordability factors can include whether an institution keeps tuition and fees within the commission’s recommendations for the entire intended length of a program.

Access factors include credentials earned while a student is still in high school, such as the stackable Indiana College Core. The formula can also recognize embedded stop-out credentials that give students a milestone to complete before returning later for a larger degree.

The commission described the revised approach as simpler than the previous system, which used more performance measures and included a retention component. The goal is to rely more heavily on completed credentials and other outcomes that can be measured with more timely data.

Ivy Tech and Vincennes will use a separate structure

Indiana law requires the commission to maintain two formulas: one for the state’s four-year public institutions and a separate formula for Ivy Tech Community College.

The Ivy Tech-specific structure also applies to sub-associate and associate degrees completed at Vincennes University. Those credentials will not be evaluated under exactly the same formula used for the state’s four-year public colleges.

Why the financial effect is still unsettled

Indiana has used performance funding since 2003, and the metrics have changed over time. Independent reporting has found that performance funding represented about 1% of the state’s higher education funding pool in fiscal year 2024-25. The 2025-27 biennium included no appropriation for the performance-funding pool, although institutions’ outcomes continued to be tracked.

The commission can develop and update the formula, but it cannot appropriate state funds. The State Budget Committee’s review this fall will be an important checkpoint, but the General Assembly will retain control over the final appropriation.

For students and families, the July approval does not immediately change tuition, financial aid or degree requirements. Its practical effect will depend on whether lawmakers create a funding pool and how institutions respond after award amounts and appropriations are known.

What happens next

The commission is expected to present the framework to the State Budget Committee in fall 2026. The commission’s budget recommendations will then help inform the next legislative budget process. If lawmakers approve funding, the formula is scheduled to apply for the two-year period beginning in fiscal year 2027-28.

Sources

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