After years of quiet evolution, the competency-based education movement is now poised for explosive growth, with several hundred colleges and universities developing programs that fundamentally redefine the college degree.

An estimated 34 U.S. institutions now offer some form of competency-based learning, according to research by Robert Kelchen, an assistant professor of higher education at Seton Hall University in New Jersey. But that number is expected to multiply significantly as a new wave of schools embraces the model.

Growth has been fueled by an endorsement from the federal government, which has approved waivers to allow financial aid for students in competency-based programs.

Competency-based learning is of high interest because “it’s about articulating what the degrees actually mean and better demonstrating what the students know and can do with the degrees,” says Jamie Merisotis, president and CEO of the Lumina Foundation, the primary supporter of the Competency-Based Education Network coalition of colleges and universities.

“That’s what both consumers and employers are demanding.”

As the competency-based education movement spreads, early adopters—including some whose programs were launched only a few years ago—are refining their approaches to better meet the needs of students and achieve financial stability. But because the programs are so new, they caution that the changes aren’t about completely restructuring their competency-based models.

“We’re looking at a thorough examination of where we’ve been and what we need to do to continue our leading edge in this area,” says Ronda Tracy, chancellor of the Kentucky Community and Technical College System, which started a competency-based program in 2009.

Here’s what developing and refining the competency-based approach looks like in practice.

Mentoring keeps students on track

While competency-based education has been offered in a handful of colleges and universities since the 1970s, the modern version divorces learning from the credit hour. Instead of basing student achievement on seat time, these programs test students on whether they have mastered a defined set of competencies, such as writing a business plan or solving a math problem.

At Western Governors University, a competency-based learning pioneer founded as an online school in 1997, the way faculty work with students has changed since the program launched.

While faculty members mentor students in their courses, a separate group of instructors representing various industry sectors now advise students from the day they enroll to the day they graduate. “We found that the students needed additional connectivity and help,” says President Robert Mendenhall.

In another modification, in 2013 the university began deploying analytics to identify students who are struggling and assign faculty to work more closely with them. In a competency-based model, it may be difficult to identify students who need help because they can only pass or fail the competency on which they are working—there are no C grades, says Mendenhall.

But the university now also uses metrics to keep track of students’ assessments, the amount of time invested in coursework and the questions they are asking. “This is where the faculty mentors have a very important role,” Mendenhall says. “This allows us to essentially give alerts to our faculty to call these students because they’re struggling.”

These improvements have made a difference in the performance of the school’s 60,000 students, Mendenhall says. Between 2008 and 2014, the one-year retention rate at the university rose from 67 to 79 percent, and the proportion of students making satisfactory academic progress went from 75 to 95 percent.

Finding financial stability

Most competency-based programs operate on an “all-you-can-learn” model, in which students are charged a fee every six months to complete as many competencies or learning modules as they can. But whether that subscription model creates a sustainable program is not yet clear.

Southern New Hampshire University charges students $1,250 for each six-month subscription period to participate in College for America, the competency-based program the school launched in 2013. That’s an extremely low fee, says President Paul LeBlanc. For the institution, it’s “a model that requires getting to a certain volume before you can break even.” His goal, he adds, is to break even by 2017.

Officials, who have debated raising prices, have embarked on another strategy that has the potential to bring thousands of new students into the program and generate more tuition income. In June, Anthem Inc., the nation’s second largest health insurer, partnered with College for America to offer tuition reimbursement to its employees for associate’s or bachelor’s degrees.

This could generate an influx of students—an estimated 34,000 of Anthem’s 55,000 employees do not have a college degree. The educational benefit will be offered to employees who work 20 or more hours a week or have been employed for at least six months.

“This is the first time a major corporation has embraced a competency-based degree program for all its employees,” LeBlanc says. “If you’re looking for validation, this is the real deal.”

The partnership expands a pilot program that Southern New Hampshire launched in 2013 with Anthem Blue Cross and Blue Shield of New Hampshire. Under that program, nine employees earned associate’s degrees and some are now pursuing bachelor’s degrees.

“I think they realize this is a way of getting skills up among their workforce,” LeBlanc says. “In the business world, it’s all about human capital.”

Adapting to financial aid rules

One factor influencing program design is the U.S. Department of Education’s decision to grant a limited number of waivers so students can receive federal financial aid based on measured competencies rather than credit hours. In the past, Pell Grants were available only to students in more traditional tuition-based programs.

But institutions also have found that complying with the Pell Grant rules requires some adjustments. The Kentucky Community and Technical College System, for example, no longer lets students enroll in its Learn on Demand competency-based program whenever they want. Instead, students must enroll on one of 11 consecutive Mondays within a given semester.

In addition, officals at the 16-college system created “parent” courses into which the learning modules feed and create the equivalent of three-credit courses. Students may test out of any of the modules based on prior learning or work experience.

Northern Arizona University, which has offered the competency-based program Personalized Learning since 2013, may change its admissions policy from daily to weekly starts. “It doesn’t have anything to do with the instruction side,” says Fred Hurst, senior vice president for extended campuses. “It has to do with the financial aid.”

Also driving the switch to weekly starts is the need to streamline data collection so that competency-based programs can interface with student information systems, which are designed for standard terms. The Lumina and Gates Foundations are supporting work to establish standards for data exchange between systems and to encourage companies to develop systems that would automate the processes, Hurst says.

Pell Grants are critical because low-income students are a primary target of competency-based programs, says Robert Kelchen, an assistant professor of higher education at Seton Hall.

For the 2015-16 academic year, the maximum annual Pell award will be $5,775, which would nearly cover the average $6,000 tuition for a year at Western Governors University, Kelchen says.

“More colleges are offering competency-based learning because the Department of Education is working with individual colleges, and to some extent groups of colleges, to provide financial aid for these programs,” Kelchen adds.

Meeting labor market needs

Other key factors behind the growth are the changing labor market and skepticism about the value of a college degree.

To determine the skills employers are seeking, Western Governors has set up councils of industry representatives to help the school define which competencies students should learn. “We are really employer-driven in meeting these workplace needs,” Mendenhall says.

Institutions must embrace competency-based education because employers increasingly evaluate applicants’ competencies more closely than they do college transcripts, says Ryan Craig, author of College Disrupted: The Great Unbundling of Higher Education (Palgrave Macmillan, 2015).

“A decade from now, most of higher education will have shifted to competency-based education,” Craig predicts. “There are lots of different models, but ultimately the programs will not be based on time, but on competencies.”

Sherrie Negrea is a writer based in Ithaca, New York.

NOTE: In an earlier version of this article, the tuition cost for Southern New Hampshire University’s College for America program was misstated as $1,250 per month. Tuition is actually $2,500 per year, or $1,250 for each six-month subscription period. We apologize for the error.