Texas lawmakers should revamp the way Texas funds public universities by giving them more money as students make progress toward a degree and graduate, the state higher education agency recommended Wednesday.
That recommendation came during the same meeting where Texas Higher Education Coordinating Board officials reduced similar incentives in existing outcomes-based funding for community colleges, which was above the Legislature’s budget.
The recommendation calls for the new incentives to be financed primarily through additional government resources, but does not recommend a specific amount. Such incentive payments would supplement, not replace, existing enrollment-based funding for universities.
Lawmakers would have to create and fund the model when they return to Austin in 2027.
But the call for additional money comes as state leaders signal they want to limit spending.
Last week, Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dustin Burrows ordered public universities, colleges and state agencies to seek 3% less federal base funding, saying they wanted to save money on affordability measures and property tax cuts.
The THECB has proposed a model in which 40% of incentive funding would be based on rewarding universities when students remain enrolled and meet certain credit hour milestones.
The bulk of the funding, 60%, would be tied to students earning a bachelor’s degree that provides a financial return. This is a degree that allows a typical graduate to earn enough within ten years to recoup college costs and exceed the income of a typical high school graduate. A THECB committee report notes that all bachelor’s degrees awarded by public universities in Texas currently meet this threshold.
Universities could receive additional money to graduate economically or academically disadvantaged students, adult learners, or those returning after a long absence from higher education. For example, schools would receive more funding for graduates who are federal Pell Grant recipients, that is, those who come from qualified low-income families.
Universities could also receive additional funding to award degrees in high-demand fields and to help students graduate with no more than 120% of the credit hours required to graduate.
Texas currently allocates much of its funding to public universities based on the number and type of courses students take.
Schools also receive Institutional Development Funds, which are flexible state funds that they can use for academic programs, student services or other operating expenses. Lawmakers decide how much each institution receives individually, largely based on its own priorities rather than a uniform formula, and the amounts vary widely.
Funding for institutional improvements has repeatedly been a lever in disputes between legislatures and universities.
At the start of the 2025 legislative session, House and Senate budget writers proposed eliminating it. Meanwhile, Patrick threatened to cut funding to universities if schools didn’t scrap their diversity, equity and inclusion initiatives.
University leaders warned at the time that losing the money would force them to cut courses, student services and other measures. Ultimately, the Legislature retained the provision but added a budget framework that directed the THECB to consider whether it should be phased out and replaced with performance-based funding.
THECB board members asked during Wednesday’s discussion why the state should not completely eliminate funding for institutional improvements and redirect it entirely to the new performance-based model.
Daniel Harper, vice chancellor for finance and chief financial officer of the Texas State University System and one of several officials who developed the proposal, said the group modeled that option but concluded it would leave some universities without additional funding and make passing the proposal politically difficult. For the current two-year budget cycle, universities received a total of about $400 million in institutional development funding, he said.
“It has been a significant challenge for members representing these districts to support policies that do not provide additional support for institutions,” Harper said.
Instead, the group proposed creating a new funding stream, funded primarily with additional money, while redirecting some of the funds there for institutional development.
THECB’s recommendation takes a page from funding at the community college level.
Lawmakers overhauled the way community colleges receive state money in 2023, tying more money to outcomes like degree completions or transfers to universities. These colleges have repeatedly made more money than lawmakers budgeted by exceeding projections. To reduce those payouts, the THECB board voted Wednesday to cut the bonuses community colleges receive for educating low-income students and adult learners.
THECB spokesman Bobbi Kessler said the university proposal is structured differently. Community college funding will be adjusted as data is updated between legislative sessions. Under the universities proposal, the Legislature would determine each university’s allocation during the session based on past results, which would remain unchanged until the Legislature reassessed it the following session.
Sneha Dey contributed to this report.
The Texas Tribune partners with Open Campus for higher education coverage.
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This story previously appeared in the Texas Tribune.
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