# Can Compact Language Models Search Like Agents? Distillation-Guided Policy Optimization for Preserving Agentic RAG Capabilities

arXiv: https://arxiv.org/abs/2508.20324 · HTML: https://mlsanity.com/paper/2508.20324/

## Key facts

- Cited by 2 papers in the map (data through 14 Oct 2026).
- Placed in Reinforcement learning for LLM agents, one of 16 directions in LLM agents and tool use.
- Builds on 30 of its 44 references that are in the map.
- First posted on arXiv 27 Aug 2025.

## Placed in

- LLM agents and tool use / [Reinforcement learning for LLM agents](https://mlsanity.com/agents/reinforcement-learning-for-llm-agents/)

## Builds on (most cited first, 30 of 30)

- [Proximal Policy Optimization Algorithms](https://mlsanity.com/paper/1707.06347/) (2017)
- [Distilling the Knowledge in a Neural Network](https://mlsanity.com/paper/1503.02531/) (2015)
- [DeepSeekMath: Pushing the Limits of Mathematical Reasoning in Open Language Models](https://mlsanity.com/paper/2402.03300/) (2024)
- [Retrieval-Augmented Generation for Knowledge-Intensive NLP Tasks](https://mlsanity.com/paper/2005.11401/) (2020)
- [ReAct: Synergizing Reasoning and Acting in Language Models](https://mlsanity.com/paper/2210.03629/) (2022)
- [Dense Passage Retrieval for Open-Domain Question Answering](https://mlsanity.com/paper/2004.04906/) (2020)
- [Gemini 2.5: Pushing the Frontier with Advanced Reasoning, Multimodality, Long Context, and Next Generation Agentic Capabilities](https://mlsanity.com/paper/2507.06261/) (2025)
- [HotpotQA: A Dataset for Diverse, Explainable Multi-hop Question Answering](https://mlsanity.com/paper/1809.09600/) (2018)
- [TriviaQA: A Large Scale Distantly Supervised Challenge Dataset for Reading Comprehension](https://mlsanity.com/paper/1705.03551/) (2017)
- [High-Dimensional Continuous Control Using Generalized Advantage Estimation](https://mlsanity.com/paper/1506.02438/) (2015)
- [WebGPT: Browser-assisted question-answering with human feedback](https://mlsanity.com/paper/2112.09332/) (2021)
- [Search-R1: Training LLMs to Reason and Leverage Search Engines with Reinforcement Learning](https://mlsanity.com/paper/2503.09516/) (2025)
- [Constructing A Multi-hop QA Dataset for Comprehensive Evaluation of Reasoning Steps](https://mlsanity.com/paper/2011.01060/) (2020)
- [Text Embeddings by Weakly-Supervised Contrastive Pre-training](https://mlsanity.com/paper/2212.03533/) (2022)
- [When Not to Trust Language Models: Investigating Effectiveness of Parametric and Non-Parametric Memories](https://mlsanity.com/paper/2212.10511/) (2022)
- [Measuring and Narrowing the Compositionality Gap in Language Models](https://mlsanity.com/paper/2210.03350/) (2022)
- [On-Policy Distillation of Language Models: Learning from Self-Generated Mistakes](https://mlsanity.com/paper/2306.13649/) (2023)
- [Interleaving Retrieval with Chain-of-Thought Reasoning for Knowledge-Intensive Multi-Step Questions](https://mlsanity.com/paper/2212.10509/) (2022)
- [Scheduled Sampling for Sequence Prediction with Recurrent Neural Networks](https://mlsanity.com/paper/1506.03099/) (2015)
- [Sequence-Level Knowledge Distillation](https://mlsanity.com/paper/1606.07947/) (2016)
- [Improved Knowledge Distillation via Teacher Assistant](https://mlsanity.com/paper/1902.03393/) (2019)
- [Small Language Models are the Future of Agentic AI](https://mlsanity.com/paper/2506.02153/) (2025)
- [Agentic Retrieval-Augmented Generation: A Survey on Agentic RAG](https://mlsanity.com/paper/2501.09136/) (2025)
- [RankRAG: Unifying Context Ranking with Retrieval-Augmented Generation in LLMs](https://mlsanity.com/paper/2407.02485/) (2024)
- [Small Language Models: Survey, Measurements, and Insights](https://mlsanity.com/paper/2409.15790/) (2024)
- [Knowledge-Augmented Reasoning Distillation for Small Language Models in Knowledge-Intensive Tasks](https://mlsanity.com/paper/2305.18395/) (2023)
- [Lifting the Curse of Capacity Gap in Distilling Language Models](https://mlsanity.com/paper/2305.12129/) (2023)
- [Adaptive Retrieval-Augmented Generation for Conversational Systems](https://mlsanity.com/paper/2407.21712/) (2024)
- [TAID: Temporally Adaptive Interpolated Distillation for Efficient Knowledge Transfer in Language Models](https://mlsanity.com/paper/2501.16937/) (2025)
- [Neural-Symbolic Collaborative Distillation: Advancing Small Language Models for Complex Reasoning Tasks](https://mlsanity.com/paper/2409.13203/) (2024)

## Built on by (most cited first, 2 of 2)

- [Reinforcement Learning with Verifiable Rewards for Small Search Agents](https://mlsanity.com/paper/2609.28765/) (2026)
- [Teacher-Guided Tool Learning for Small Language Models via Bidirectional KL Constraints](https://mlsanity.com/paper/2610.18459/) (2026)

## Abstract (arXiv)

Reinforcement Learning has emerged as a dominant post-training approach to elicit agentic RAG behaviors such as search and planning from language models. Despite its success with larger models, applying RL to compact models (e.g., 0.5--1B parameters) presents unique challenges. The compact models exhibit poor initial performance, resulting in sparse rewards and unstable training. To overcome these difficulties, we propose Distillation-Guided Policy Optimization (DGPO), which employs cold-start initialization from teacher demonstrations and continuous teacher guidance during policy optimization. To understand how compact models preserve agentic behavior, we introduce Agentic RAG Capabilities (ARC), a fine-grained metric analyzing reasoning, search coordination, and response synthesis. Comprehensive experiments demonstrate that DGPO enables compact models to achieve sophisticated agentic search behaviors, even outperforming the larger teacher model in some cases. DGPO makes agentic RAG feasible in computing resource-constrained environments.