A Value-Added Model To Measure Higher Education Returns On Government Investment

Abstract

The cost of college is increasing faster than inflation with the government funding over 19 million student loans that have a current outstanding balance of over $850 billion in 2010.  Student default rates for 2008 averaged 7% but for some colleges, default rates were as high as 46.8%.  Congress is demanding answers from colleges and universities about the quality of their education and the return on the government’s investment.  Current practices measure universities effectiveness by self-developed and measured outcomes.  This system does not seem to be effective in measuring the value-added by a college education.  This paper develops a model to evaluate the value-added through higher education.  The model uses financial return on investment as viewed by the government lenders.  A service quality model is introduced to help identify factors that are significant and easy to measure in determining a university’s ability to return the government’s investment.