On September 2nd 2010 I wrote a mischievous column ("Declining by degree") likening America's universities to its car companies in about 1950: on top of the world and about to take an almighty fall. Since then I have heard the argument dismissed and denounced by the presidents of Harvard, Princeton and New York University. John Sexton, NYU's affable president, even likened me to a member of the tea party, for which there is no more damning condemnation in academic circles.

So I am particularly delighted to read Peter Thiel's latest thoughts on the higher-education bubble. Mr Thiel, the co-founder of PayPal and a legendary investor, has a long history of identifying bubbles. He insisted on striking a deal, against everybody's advice, when the market valued PayPal at "only" $500m, on the ground that the dotcom bubble was about to burst (this was March 2000). He refused to buy property until recently, figuring that the dotcom bubble had simply shifted to housing.

Mr Thiel believes that higher education fills all the criteria for a bubble: tuition costs are too high, debt loads are too onerous, and there is mounting evidence that the rewards are over-rated. Add to this the fact that politicians are doing everything they can to expand the supply of higher education (reasoning that the "jobs of the future" require college degrees), much as they did everything that they could to expand the supply of "affordable" housing, and it is hard to see how we can escape disaster.

Here is Sarah Lacy's summary of Mr Thiel's argument about the safety-blanket role of higher education:
Mr Thiel's own solution to the problem befits a man with money and a mission: he is offering 20 students $100,000 scholarships, over two years, to leave school and start a company rather than enter college.

While I'm on the subject of higher education, I'll point to three other bits and pieces that have caught my attention. Paul Krugman has pointed out that, contrary to popular wisdom, expounded relentlessly by the OECD among other august bodies, technological progress may reduce the demand for high-end jobs, not just low-end jobs. Computer software is now employed to perform tasks that used to require armies of lawyers, engineers or highly educated workers.
Of course, the value of education cannot be reduced to dollars and cents, as much as elite universities try to do so. Education is its own reward. But I wonder about the quality of a great deal of higher education, especially in the humanities. The best academics, the Gordon Woods of this world, produce wonderful stuff. But I am regularly shocked by the quality of the books that flow into The Economist's offices from university presses, by the tediousness of the subject matter, the contortions of the prose and the willingness of the authors to bow the knee to various exhausted academic pieties (the various "isms") in the name of challenging conventions (try looking at anything produced by Duke University Press, for example).

http://www.economist.com/blogs/schum...gher_education (full article)

 

Here is what Peter Thiel said:


Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the ’90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned — you had to own a house in 2005, and you had to be in an equity-market index fund in 1999.

Probably the only candidate left for a bubble — at least in the developed world (maybe emerging markets are a bubble) — is education. It’s basically extremely overpriced. People are not getting their money’s worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there’s this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that’s what everybody’s doing.

It is, to my mind, in some ways worse than the housing bubble. There are a few things that make it worse. One is that when people make a mistake in taking on an education loan, they’re legally much more difficult to get out of than housing loans. With housing, typically they’re non-recourse — you can just walk out of the house. With education, they’re recourse, and they typically survive bankruptcy. If you borrowed money and went to a college where the education didn’t create any value, that is potentially a really big mistake.

There have been a lot of critiques of the finance industry’s having possibly foisted subprime mortgages on unknowing buyers, and a lot of those kinds of arguments are even more powerful when used against college administrators who are probably in some ways engaged in equally misleading advertising. Like housing was, college is advertised as an investment for the future. But in most cases it’s really just consumption, where college is just a four-year party, in the same way that buying a large house with a really big swimming pool, etc., is probably not an investment decision but a consumption decision. It was something about combining the investment decision and the consumption decision that made the housing thing so tricky to get a handle on — and I think that’s also true of the college bubble.

One important difference between the housing bubble and the education bubble is that there was sort of a class aspect to the housing bubble: upper-middle-class people in the U.S. tend to be invested in equities, and middle-class people tend to be invested in housing, so there was a way in which the housing bubble was a way of making fun of the middle class for various sophisticated elites that ran all the way through the housing bubble. It was sort of like, “Look at those dumb people and beatniks in suburban America who are doing this crazy housing thing.” So even though it was a crazy bubble, there was at least a kind of counter-narrative; you had a bit of a dissenting narrative. Education is an upper-middle-class thing, and so something that is not questioned by elites at all, and that’s why the education market is more likely to be distorted.

You know, we’ve looked at the math on this, and I estimate that 70 to 80 percent of the colleges in the U.S. are not generating a positive return on investment. Even at the top universities, it may be positive in some sense — but the counterfactual question is, how well would their students have done had they not gone to college? Are they really just selecting for talented people who would have done well anyway? Or are you actually educating them? That’s the kind of question that isn’t analyzed very carefully. My suspicion is that they’re just good at identifying talented people rather than adding value. So there are a lot of things about it that are very strange.

The Great Recession of 2008 to the present is helping to bring the education bubble to a head. When parents have invested enormous amounts of money in their kids’ education, to find their kids coming back to live with them — well, that was not what they bargained for. So the crazy bubble in education is at a point where it is very close to unraveling.

In early 2009, there was a question of why the stimulus money was not going to infrastructure, and a very large amount was going to subsidizing college loans and encouraging people to go back to school. The argument was that we get a higher return on human capital than on infrastructure. While that’s certainly possible, and I agree that human capital is extremely important, I think we’re not actually measuring the return we’re getting on the human capital. It is, in fact, considered in some ways inappropriate to even ask the question of what the return is. We are given bromides to the effect of, “Well, you know college education is good, but it’s good precisely because it doesn’t teach you anything specific; you become a more well-rounded person, a better citizen, you learn how to learn.” There tends to be an evasion of specificity of what exactly it is that is learned. And so these human-capital intuitions may be very far off in a lot of colleges.

http://www.nationalreview.com/articles/print/257531

 

I never went to college or grad school for a job; I wanted to simply learn about a field I enjoyed.

If I wanted a job, a two-year tech/community college degree would be just fine.

 

Unemployed people with MBA's are a dime a dozen now-a-days.

 

Sometimes it's just better to forgo the higher education and get specialized training

 

Average student loan debt now outweighs credit card debt.

I still don't get why morons get liberal arts or social degrees and graduate with more than $50K - $200K in student loans.

 

Probably one of the happiest days of my Dad's life was when I switched from Psychology to Accounting for my major. He probably wasn't happy paying for out of state tuition for a psych degree...

 

I know one. She manages a book store now. I'm pretty sure you don't need a masters degree for that.

 

Yes college loans are getting out of hand these days. Perhaps the tuition rates are the bubble and not actually the degree itself. Back when my Father went to college, he was able to work at night and pay his tuition as well as living expenses. When he graduated he was debt free and was able to reap the fruits of his engineering degree pretty quickly. There weren't as many loans available in my Father's time so people paid cash for their schooling.

Now there are lots of loan choices and college tuitions have climbed to extremely high levels. A student might have 20-200k of debt racked up and it may take them 15 years to pay off or longer. It might not be worth some people pursuing a college degree with that deal possibly.

Acquiring a college degree shows a form of dedication at a minimum- of coarse the school and degree will greatly multiply or divide from the dedication factor. There will always be a demand for college graduates in the proper fields.

 

Higher Education is more than simply a degree imho. I don't disagree that more and more people should forge towards opening their own companies/businesses but you can't generally say a degree isn't worth it anymore. College is far more than just taking classes, it's a experience that prepares and disciplines you in a certain way. I have a degree that I just finished and my own company and honestly do believe that the two work well together.

 

I was driving home today and CNBC profiled College Loans- I only caught the last 10 minutes of the show but it sounded pretty informative- guess I'll have to catch the rest of it from the web site.

 

The most important thing that people that haven't been to college forget, is the network that you create while you are in college. Especially in the post-undergrad world, the network you create from people you are in class with, and work on projects with is where the huge benefit is. Keeping in touch with those people, and leveraging them as part of your professional network is how you can succeed in your career.

 

The best piece of information in that show is that if you are co-signing a student loan make sure that the student takes out a life insurance policy to cover the tuition costs incase the unthinkable happens. Otherwise you will be stuck with the pain of the student's death and the loan. I got stuck with a loan because of this once. I co-signed a $5,000 loan for a student and she died


The family in that show with 4 kids that was figuring that each kid is going to have about $80,000 in loans was crazy to me. Community college, people. Why send the kids to a private school if you can't afford it?

 

Very interesting. I know as I was graduating, the university I went to was increasing tuition at about 10% per year, and that has continued I think until now. I'm not sure what the reason is, because I know the prof's aren't getting 10% raises every year, but they are always building new buildings and the state keeps cutting their funding so those could be 2 big causes.

 

Someone has to pay for the football team. Every time a student gets a free ride there's a little more money that comes out of the paying kids' pockets.

 

I didn't realize so many members actually worked in administration at higher ed. institutions.

 

That's exactly what I did, spent 2 years at CC, then transfered to a 4-year. Got my degree, and saved a ton of cash. Also helps that I went to an in-state school.