Performance-based funding is a system based on allocating a portion of a state's higher education budget according to specific performance measures such as course completion, credit attainment, and degree completion, instead of allocating funding based entirely on enrollment. It is a model that provides a fuller picture of how successfully institutions have used their state appropriations to support students throughout their college careers and to promote course and degree completion. Furthermore, this funding structure incorporates both enrollment and performance metrics as incentives for colleges to continue to make progress on these important objectives. This brief summarizes the history of performance-based funding in higher education at the state level, outlines in further detail a subset of state experiences, and recommends that states continue to explore performance-based funding options in their higher education systems. (Contains 24 endnotes.)