Mitch Daniels has achieved national recognition for his fiscal discipline. It’s well-known that Indiana was elevated to a AAA rating under his leadership, and that the state was busily racking up a surplus during the Great Recession while other state budgets around the country were cratering.

What is less-known nationally is that the fiscal stability he generated also created an environment of stability in Indiana’s institutions of higher education. This, in turn, has enabled the state to limit the effect of the growing college bubble, and to keep university administrators focused on performance.

As states’ budgets for higher education fluctuate widely with economic cycles, Indiana has kept its budgets fairly steady. While Indiana has resisted hiking its budgets dramatically during good times, which other states have done, it has as a result not had to engage in painful cutting during bad times. As states were cutting their higher education budgets in double digits – as high as 36 percent in some places – during the economic downturn in 2009-2010, Indiana only cut its budget by one percent.

Even as many higher education advocates can be heard complaining about Indiana’s stinginess with regard to its universities, what one university president has called the state’s “slow and steady” approach to its universities has allowed Daniels to focus on the most important thing: increasing colleges’ and universities’ completion rates and improving the quality of the state’s future workforce.

Funding Performance rather than Students in Seats

Like most other states, Indiana used to provide funding to two- and four-year degree state institutions based on enrollment numbers. The problem, though, was that too many people who enrolled for classes never graduated. This story could be told over and again, state after state.

Daniels realized early on that this type of approach to higher education was based on bad incentives and flawed metrics.  What was needed instead was a performance-based model, one that prioritized on-time graduation and student performance. Indiana had implemented its first performance-based set of higher education metrics before Daniels took office, but it needed both implementation and improvement.

Since 2004, Indiana has become a national leaders on higher education policy as a result.

The Hoosier State is one of only four states nationally to receive an “A” grade for higher education policy from the U.S. Chamber of Commerce’sLeaders and Laggards report, which is the Chamber’s annual assessment of higher education in America. For a state like Indiana, which has been troubled for so long by poor education outcomes when compared to other states, getting the policy environment right is absolutely essential. The poor outcomes have been the result of wrong-headed policies all along. Reversing course has been necessary before the performance outcomes can improve.

Figure One: Policy Environment Rankings for Midwestern States

Within a few years, Indiana had become a national model for higher education policy. Its policy leadership has not only made it a national model, it has made the state a bright spot in the Midwest. Indiana exists as one of only a few places nationally that ties funding for its state institutions to clear performance-based goals.

Taking a fresh, 21st-century approach to higher education requires changing the rules of the game to which most people had grown accustomed. Daniels reconstituted the mission of Indiana’s Commission on Higher Education (CHE), which had been around since 1971, to help achieve these goals.

A New Culture of Accountability

CHE was created in 1971 to approve programs that the universities proposed to implement. Under Daniels, the commission was also given the authority to disapprove programs.

Why  was this so important? Because the accrual of new programs, department by department, over the years was directly contributing to credit creep.  If over time a particular degree had grown from requiring 120 credit hours to, say, 136 hours, the commission was given the authority to disapprove the additional requirements that were – in too many cases – delaying graduation for students without materially adding to their professional preparedness. Plus, it was piling even more debt upon future graduates. CHE’s new policy placed new conditions on additional credit hours, tying them closely to any new licensing requirements that might warrant the additional programs and courses.

Universities everywhere will have a tendency to add programs that make sense based on new knowledge and innovations. That is as it should be. However, a strengthened CHE has brought accountability to this tendency and ensured that “innovation” doesn’t become a future drag on the opportunities and earnings of tomorrow’s workforce, not to mention an unneeded drain on taxpayer dollars.

In addition the Board of Proprietary Education (BPE), which had formerly operated as a commission independent of CHE, was brought under the authority of CHE. Previously, CHE had little knowledge of, or ability to influence, policies that affected the performance and graduation rates of proprietary institutions that the state was regulating through accreditation and related requirements. The state was involved in overseeing compliance for everything from nursing colleges to technical colleges to funeral services training schools without having a coordinated set of policies that promote completion and performance. Bringing BPE under CHE’s authority ensured the state was operating with a singular vision and purpose.

Creating a Real, Meaningful Link Between Student Aid and Policy

Daniels and state legislators also agreed to move the state’s main student aid program under the authority of CHE.  Until July 2012, the State Student Assistance Commission of Indiana, or SSACI, existed as an independent agency.

SSACI was moved in 2011 to CHE so that higher education policy decisions could be linked directly with student aid decisions. SSACI’s director was made an associate commissioner at CHE, and the agency became known as the Division of Student Aid.

Bringing student aid operations under CHE launched a new effort to strengthen how Indiana’s universities and student aid institutions incentivize on-time completion in a coordinated way without the cross-purposes and flawed incentives of the past. For instance, Indiana created Core 40, which sets the standard for all high school graduates’ readiness for college, and now student aid policies are aligned with Core 40 completion.

More generally, CHE moved from designing financial aid around the idea of access to using funds to incentivize success in school.

Creating Seamlessness and Quality in Higher Education

One of the reasons educational institutions everywhere are experiencing pressures from multiple angles is that they have not evolved to match the way we live and learn in the 21st century. Different standards in different schools, misaligned expectations in higher education and K-12 schools, and a mismatch between employer expectations and colleges – all of these result from decades of “silo construction” in which the various learning environments develop differing standards and policies.

Daniels recognized these problems on the campaign trail and made a priority of doing all he could to realign educational institutions with the changing economic landscape. CHE has been at the center of this mission from the outset.

The result, eight years later, is a statewide learning environment in which common standards and expectations promote “aiming higher” among students, a theme Daniels touches upon nearly every day in one way or another.

System-wide, everyone understands that (1) increasing college completion, (2) increasing productivity among higher education institutions, and (3) improving the quality of the degrees being offered and the standards by which students are assessed.

This was achieved by looking at the entire learning spectrum and ensuring that it was seamlessly consistent in the standards it uses and the outcomes it expects. Several aspects of these reforms were especially important:

Institutions

Practically, at the institutional level, standards were raised and seamlessness was ensured through the empowerment of CHE to bring accountability and consistent oversight to all aspects of Indiana’s higher education environment, as described earlier. Moving BPE and SSACI to CHE was not about centralizing power for its own sake, but rather was entirely about improving completion rates, productivity, and quality.

Leadership

At the level of leadership, Daniels also introduced training for university trustees, whom the Governor appoints. This unconventional move became an essential aspect of instilling a common set of goals throughout the university leadership structure. In addition, wherever possible, Daniels looked for fresh leadership with unconventional backgrounds. For instance, when looking for a new President for the state’s largest community college system, Daniels recruited the CEO of an Indiana-based truck, bus and off-road parts supplier, who had doubled the company’s sales and transformed it into the global presence.

Seamless transfers 

In addition, at the level of the student herself, CHE worked with the universities and state legislature to establish a 30-credit core of general education that transfers to any Indiana state institution. The idea of core credits emerged from CHE’s commitment to productivity – namely that Indiana’s goal would no longer simply be to producing more degrees but graduating students with core set of skills and learning. Giving the mobile nature of people’s lives in a changing economy, a seamless transfer process was needed to ensure that state maintained its goal of increasing completion rates. A move should never unnecessarily slow down a student’s progress.

Intentionality 

Daniels co-chaired the Indiana Education Roundtable with the State Superintendent of Education, which other states have studied as a model for driving consistent change across institutions. It ultimately served as a vehicle through which Daniels could keep all leaders intentionally focused on a common mission. With members from public and private institutions with a focus on human capital and workforce preparation, the Roundtable made it possible to drive statewide standards for college readiness and performance to every corner of Indiana.

Continuing to Expand Options

Daniels’ nationally-celebrated K-12 education reforms are well-known for the manner in which they expand choices and educational options for families and students. They were borne out of the realization that educational quality improves as a vibrant market of options opens up.

The same principle could be found at the heart of Daniels’ higher education efforts, especially in his efforts to create bring Western Governors University (WGU) to Indiana. Recognizing that a significant number of Hoosiers were trying to complete degrees while working and balancing the concerns of family and community, Daniels believed Indiana had a significant market for online four-year bachelor degrees. Too many students who were giving college a go in their 30s and 40s were dropping out because of life’s pressures. Daniels believed that WGU was an important solution to that problem.

WGU had begun in 1997 by thirteen governors looking to use distance learning to extend higher education to their growing populations. Daniels embraced WGU’s competency model, which bases graduation not on credit hours or classes attended but on the skills and learning of the student.

He negotiated with WGU to make Indiana the first state (and the only east of the Mississippi River) to have its own state-based WGU program. Two other states, Washington and Texas, have followed the Indiana model and created their own state programs, as well. In the first two years, WGU-Indiana grew from 250 to 3,000 students and continues to grow.