UNIVERSITIES and other third-level colleges face the prospect of having up to 10pc of their state funding withheld if they fail to reach new performance targets.
It is part of a revolutionary change to how higher education is funded, which will – for the first time – link how much colleges receive in state grants to how well they perform.
The new "stick and carrot" approach will rate colleges under a number of different headings, such as student retention, research and matching graduates to the needs of industry.
If a college does not meet its targets, some of its funding will be withheld – and could be diverted to reward high-performers.
It is aimed at enhancing the quality of the third-level experience for up to 57,000 Leaving Certificate candidates awaiting their results on Wednesday and those coming after them who will push higher education enrolments up by 25pc by 2030.
The reform introduces an unprecedented level of accountability into higher education, switching the focus from what goes into the system in terms of student numbers, staff and funding, to ensuring that it is delivering the right results.
It is part of a wider shake-up in higher education that also involves a rationalisation of existing structures to include college mergers, alliances and regional clusters.
The overhaul is designed to create a joined-up, world-class system that delivers what the country needs for economic and social progress, at the best value, with each college playing its own distinctive role.
The new system, which will be rolled out next year, will affect the seven universities, the 14 institutes of technology and the teacher-training colleges.
Initially, the Higher Education Authority (HEA) will reserve 5pc of the annual grant allocated for each college subject to a review of how well it meets its targets.
Currently, the State contributes about €1.1bn a year to higher education.
This means that a total of about €50m a year will be at stake, pending verification of satisfactory performance against agreed objectives.
However, in 2014, while the new system is being bedded down, only €5m from the total higher education grant will be subject to colleges meeting targets.
The first cycle of the new scheme runs up to 2016; but in the longer term, up to 10pc of annual grants may be set aside for a performance-related element.
The funding reform, based on international research and particularly what is happening in Hong Kong, will see the use of seven key performance indicators to monitor how colleges are meeting agreed objectives.
The seven indicators cover engagement in regional clusters, co-operation between individual colleges, student retention rates and inclusion of disadvantaged groups, teaching and learning excellence, research and increased commercialisation, meeting regional labour market needs and enhanced internationalisation, including more non-EU students.
However, it is not intended that colleges deliver equally under all of the headings, but each institution will be expected to play to its strengths and address any weaknesses.
For instance, for the universities, there would be expectations around attracting high-value, internationally competitive research.
On the other hand, in an institute of technology, greater weighting might be attached to producing enough Level 7/6 (ordinary degree/higher certificate) graduates to meet the needs of local industry below the level of honours degree graduates and higher.
Colleges have been given until the end of September to come up with their own performance plans, to be known as a compact, for each of the years up to 2016.
These will form the basis of detailed discussions with the HEA and a review team comprising national and international experts, with a view to making any necessary tweaks and agreeing the final compacts in January.
The compacts will be published and reports on performance of the system will be published annually.
HEA chief executive Tom Boland said he was optimistic that the system would work well "but there will be something of a learning curve".
He said that with the tight state finances and growing third-level numbers it was a challenging time.
However, they key was to ensure that "we have quality outcomes combined with efficient use of the resources we have".