By Amy Ellen Duke-Benfield
If you’ve been following state higher education finance policy, you know that Texas’s House Bill 8 (HB 8) wasn’t just another funding tweak. It shifted Texas’s community college funding formula from a static, enrollment-based system to a dynamic, performance-based model that incentivized the attainment of credentials of value. The state hopes students earn credentials that actually improve their living standards, colleges collaborate more deeply with employers and universities, and funding reflects real student success.
Why the Reform Was Needed
More than a decade ago, Texas funded its community colleges much like other states—primarily through an enrollment-based formula that allocated state dollars according to the number and type of credit hours students took. Over time, this model became unstable as enrollments declined, especially at small and rural colleges with limited local tax bases compared to their urban peers.
In 2013 the Legislature introduced a modest performance-based component, tying 10% of community college funding to student success metrics such as completions and transfers. This “test run” allowed colleges to adjust without overhauling the entire system. By 2020, as enrollment pressures persisted and funding gaps widened, community college stakeholders began pushing for broader reforms. Dr. Brenda Kays, President of Kilgore College, notes that “under the old model, all community colleges across Texas were slowly going out of business.” They argued that a more robust outcomes-based financing system was needed to sustain all colleges—particularly those facing shrinking enrollments and weaker local revenues.
The Texas Commission on Community College Finance was created by the Legislature in 2021 with a very clear mission: to rethink how Texas funds its community colleges. The Commission conducted a statewide, data-driven review of the existing funding system.
The Commission concluded that the existing formula:
- Over-rewarded enrollment and under-rewarded student success
- Was misaligned with fast-changing labor-market needs
- Penalized small and rural colleges with lower tax bases, and
- Didn’t reflect the cost of supporting adult learners or underprepared students.
They also noted that Texas lagged behind in postsecondary credential completion compared to workforce demand and that a new formula would better support Texas’s both improved student outcomes and the state’s economic development. At the time the policy was adopted, only one in four Texas students earned a postsecondary credential within six years of high-school graduation, and completion rates were even lower for economically disadvantaged students—just one in eight. Meanwhile, the fastest-growing, family-sustaining jobs in Texas increasingly required education and training beyond high school, making improved credential attainment a priority.
In its final report to the Legislature in October 2022, the Commission proposed a dynamic, performance-based finance model tied to specific outcomes.
HB 8 and the Move To Outcomes-Based Funding
HB 8–based on the Commission’s recommendations–was introduced in the 88th Texas Legislature (2023) and passed both houses with broad bipartisan support. The bill received major support from community college presidents, system leaders, business-community partners, and policy groups focused on higher education and workforce readiness.
Texas’s performance-tier funding system ties dollars to clear, student-centered outcomes that advance the state’s higher education goals and regional workforce needs. The law has several interlocking goals:
- Shift the system from paying for enrollment to paying for student outcomes that are meaningful for the economy.
- Ensure community colleges are positioned to meet workforce demands, producing credentials, transfers, and dual-credit pathways aligned with high-demand fields.
- Recognize the distinct challenges faced by adult learners, students entering college unprepared, and students from underserved backgrounds, and account for these in funding. Serving these students requires more resources and is essential to expand the state’s talent pipeline.
- Through a Base Tier, provide stability and support for colleges, ensuring those with smaller tax bases or lower tuition revenue can meet essential instructional and operational needs. This prevents rural and resource-constrained colleges from being disadvantaged under an outcomes-focused system.
The Nuts and Bolts of the Funding Formula
Under HB 8, colleges earn direct dollar amounts for specific student outcomes:
- Completion of a credential of value (certificate, degree, licensure-related credential) that meets the state’s value criteria.
- Completion of a credential of value in a high-demand field.
- Successful transfer to a four-year university after earning at least 15 semester credit hours (SCH) at a community college.
- High-school students completing 15 SCH of dual credit through a community college while in high school.
Colleges can earn funding for either a baseline credential of value, which includes credentials that meet the minimum standards of value, or a premium credential of value, which includes credentials that meet higher thresholds (faster return on investment, stronger wage outcomes) and thus trigger higher performance funding.
Credential of value status is influenced by whether the credential falls in a high-demand field (statewide or regionally), as identified by the Texas Higher Education Coordinating Board (THECB) using labor market projections based on data from the Texas Workforce Commission and the federal Bureau of Labor Statistics. Even if a credential doesn’t meet the economic criteria, THECB may still designate it a credential of value if it addresses critical workforce needs (e.g., education or health care fields).
Institutions must report detailed cost, investment, earnings, and outcome data for their credential programs, so THECB can evaluate whether each credential meets the required thresholds.
Community colleges also receive more funding for successfully supporting students in certain high-need categories to complete credentials. This structure provides colleges with strong financial incentives to support learners who face additional challenges and to ensure their success.
Weights are provided for students who are:
- Economically disadvantaged students (Pell recipients): 25%
- Students who entered academically underprepared: 25%
- Adult learners (25+): 50%
These weights can be combined, increasing funding when a student meets multiple criteria.
The formula is a true shift from paying for time spent in a classroom to paying for real student progress — progress that improves future earnings and job opportunities.
For example, FY 2025 standard dollar values for fundable outcomes include:
- Completion of 15 SCH of dual credit before high-school graduation: $3,500 per student.
- Transfer to a Texas four-year public institution with at least 15 SCH from a community college: $3,500 per student.
- Completion of an associate degree: $3,500 per student.
With the passage of HB 8, the Legislature also invested significant new dollars, enabling colleges to adapt and strengthen their programs.
In 2025, lawmakers refined the fundable outcomes and transfer measures for HB 8 and established an operationalized definition of credentials of value, which sits at the heart of the performance system. To qualify as a credential of value, it must:
- Show a positive return on investment by surpassing the cumulative median earnings of high school graduates and achieving the state-defined individual self-sufficiency wage standard.
- Allow the student to recoup the full net cost of attendance, including:
- Actual net cost (minus aid)
- Opportunity cost of foregone wages while enrolled
Short-term credentials such as occupational skills awards or institutional credentials leading to licensure or certification must meet minimum credit/ contact-hour thresholds to qualify for credential of value funding. For example:
- At least 9 SCH or 144 contact hours for credentials not in a high-demand field.
- At least 5 SCH or 80 contact hours for credentials in a high-demand field.
In 2025, Texas also expanded the definition of a successful transfer to include not only transfers to public universities but also transfers to private/independent four-year colleges, after 15 college credits. This change reflects the reality that students move through many types of institutions, and colleges benefit when students stay on track toward a bachelor’s degree.
For FY 2025 and beyond, colleges must ensure that when a student earns multiple credentials in the same year that share the same contact hours (for example, several short certificates), only one is counted for funding eligibility.
What Does All This Add Up To?
HB 8 pushes Texas community colleges to focus on four major goals:
- Support progress that truly changes students’ futures: completions, transfer, early momentum, and credentials linked to strong job prospects.
- Strengthen opportunities for learners who face greater challenges: the weighting system rewards institutions that help more students reach these milestones.
- Build clearer educational pathways: from dual credit to workforce programs to university transfer, HB 8 encourages alignment and coherence.
- Link higher education more closely to workforce needs: the refined credentials-of-value standard ties funding directly to economic outcomes.
No funding model is a perfect solution, and implementation will take time. But HB 8 is bold, practical, and centered on creating stronger opportunities for community college students.
That’s why policymakers and community college leaders nationwide should be paying attention.