President Obama’s call for a renewed emphasis on "affordability and value"  in assessing colleges and universities pairs those two terms in a way that simultaneously highlights their difference and the degree to which they have become interchangeable in much of the current discourse about higher education. There is a growing consensus within the higher ed community that we need to do a better job of "defining the value proposition" of liberal arts education. There is less agreement, however, about what is meant by "value."
Media reports like the ongoing New York Times series "Degrees of Debt"  are quickly solidifying a public perception of the value of an education as a straightforward calculation of a graduate’s future earnings minus cost of attendance. Even if we set aside the compelling arguments one can make for the intrinsic and civic value of a liberal arts education, and stick with an economic cost/benefit analysis, such an equation fails to capture the complex feedback loop that is higher education finance. In particular, it ignores the degree to which value is affected by demand, and demand is affected by many of the very qualities that contribute most significantly to cost.
Three reports that have come out within the last month provide an interesting cross-section of the issues. In early January, a panel discussion at AAC&U on "The Economics of the Liberal Arts College" included the presentation of data from Charles Blaich and colleagues at the Wabash Center of Inquiry in the Liberal Arts  claiming that less expensive colleges offer more "bang for the buck" than do higher-priced institutions. On January 10, Moody’s released a report offering a "negative outlook" on the entire higher education sector, citing in particular "weakened pricing power and enrollment pressure." And finally, a study  by two University of Michigan economists published by the National Bureau of Economic Research found that, contrary to popular belief, investing in the "consumption amenities" that are so often derided by commentators in fact heightened demand and increased value for less selective colleges — i.e., made economic sense.
Most commentaries on the high cost of higher education assume as a matter of course that student demand will correlate positively with affordability. In fact, despite the current storm of criticism, demand remains high at many of the most expensive colleges, most of which offer generous financial aid. Since level of student demand is one of the major inputs driving the perceived quality and pricing power of a school, any calculation of "value" needs to recognize that economic value is not synonymous with low price. On the contrary, where high price is matched by high demand, the two reinforce each other, as high demand justifies high price, and high price reflects a level of demand that contributes to reputation.
There are several flaws in the claim that in higher education, economic value = future earnings – price paid:
- It assumes that one can discuss "higher ed" as a unified sector, whereas institutions and curriculums differ hugely, and student backgrounds and preferences vary just as greatly. The "value" of a particular degree is not an absolute; it is relative to the goals of the individual student. What may make one college “worth it” for one student may not be equally valuable to another.
- It assumes that higher education functions as a product, which consumers are likely to want to buy at the best available price. In reality, higher education is an investment, and many consumers understand that they are not buying a four-year experience; they are investing in the future value of their diploma. Hence, the college’s desirability and reputation are relevant economic factors that need to be taken into account, and any reduction in services or "amenities" that decreases desirability may have a negative impact. Any development officer will tell you that alumni support the institution not only to enhance the education of current students, but because a stronger institution increases the prestige attached to the education they themselves received.
- It assumes that affordability is an easily defined variable that can be listed and compared, whereas different financial aid policies at each institution, and different financial situations of individual students, make the actual "cost" of each institution highly variable.
- It assumes a clear distinction between the "education" offered at a college and the nonessential "amenities" that could presumably be easily discarded. But the residential college experience does not divide neatly into two columns, with professors’ salaries on one side, and climbing walls and "nap pods" on the other. The primary value of the residential college is in its integration of academic and co-curricular activities within a 24/7 learning environment that fosters growth inside and outside the classroom. Pulling apart these strands would significantly diminish the educational experience. Most students would not consider music ensembles, career placement, counseling services, and volunteer opportunities, for example, to be "amenities." And, as I have argued elsewhere , support of faculty research is not strictly speaking an instructional cost, yet the presence of tenure-track faculty who conduct research is an important marker of institutional prestige that contributes to a college’s value.
- It assumes that when students and families complain that college is too expensive, that means that they want colleges to cut costs, i.e., change the way they operate. However, all of the facilities and services that colleges have been competing to provide are the result of student demand for those services, and one seldom hears about campuses where students are lobbying to have them reduced. Families seeking less-expensive options may well choose a college that allows the student to live at home, but those who choose a residential college experience for their student don’t want those colleges to offer a "cheaper" education. They want a bigger discount on the education they are receiving. This would require increased public funding, or increased endowment.
Ultimately, many families understand what many higher ed commentators do not: that the link between price and “value” in college tuitions is already so tenuous as to seem wholly arbitrary. This is not because colleges get away with charging too much. It is because they already charge too little. The market price of a product is always somewhat arbitrary, as it reflects what people are willing to pay rather than a product’s actual production cost, let alone some intrinsic value. But what other commodity is routinely offered at a cost substantially less than the price of production, and then discounted again based on the consumer’s ability to pay? At the most expensive colleges, the cost per student is thousands higher than the tuition price, and the endowment already subsidizes every single student, even those paying “full freight.”
In thinking about where money plays into our understanding of the value of the education provided by a college, we might line up cost, price, and prestige, and picture them as points along a continuum. At the cost end, we have the full monetary value of an education, that is, actual funds expended to provide it; next, a tuition fee that partially reflects cost, but also reflects the other resources available to subsidize it, as well as the market’s willingness to pay; and finally, the value publicly attributed to the education provided, a value that may be realized by the owner of a diploma when he or she gets a job or other benefit based in part on the prestige of the college he or she attended.
The progression from concrete funds expended to abstract benefit gained gradually transfers economic value from the institution to the student. Over time, the value of the investment made is more than recouped (and recent studies show that this continues to be the case). Finally, in a feedback loop that is unique to higher education, the owner of this investment may ultimately return value to the institution, either by donating funds, or by enhancing the college’s reputation through his or her own success. Thus, tuition paid is not complete payment for a discrete good or service, but partial payment towards a lifelong investment.
By framing this argument in economic terms, I am not buying into the notion that the primary value of an education is economic, but trying to show the limitations of that analysis. We all recognize that we must work as efficiently as possible to focus our resources on our core missions. But we also need to recognize that lowering costs does not always increase value. Given all of the commentary over the last decade about the increasing elitism of higher education -- the challenges of gaining admission to top institutions, the increasing competition among institutions to move up in the U.S. News rankings — I find it astonishingly naive to imagine that public perception of the “value” of an education from a particular college is not affected by its perceived status. And one thing that we all know from the U.S. News wars is that status comes at a high cost. No one ever rose in the rankings by increasing class size, paying their faculty less, or hiring fewer fund-raisers.
All the more reason, then, to refocus the discussion on the multiple forms of value, tangible and intangible, that can be derived from a college education, rather than imagining value can be reduced to a single measure. If the price tag of a college education represented its real value, then a fully funded fellowship to Harvard University would result in a worthless degree.
The real value of an education lies in a unique nexus of opportunity and effort that produces a different outcome for every student. Rather than using imperfect mechanisms of accountability to tighten the link between affordability and value, our task should be to loosen it, and generate the resources needed to give all students access to the education that best serves their individual talents and aspirations. That would be value added.
Alison Byerly holds an interdisciplinary appointment as college professor at Middlebury College, and is currently a visiting scholar in literature at the Massachusetts Institute of Technology. In July, she will become the 17th president of Lafayette College.