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In an article on TechCrunch prefaced by the warning that it “will piss off a lot of you,” Sarah Lacy discusses an interview with Peter Thiel, founder of PayPal and a contrarian worth listening to. The theme that is guaranteed to anger many of us? Thiel’s belief that higher education is the next economic bubble into which we’ve moved the air expelled from Web 1.0 and housing.

Economic bubbles are interesting phenomena. As Thiel sees them, they occur “when something is overvalued and intensely believed,” sort of the economic version of infatuation. To him, education now fits that definition — tuition is too high, fees make it even higher, debt loads are unreasonable, and there is mounting evidence that the payoff isn’t all it’s cracked up to be. Education, as a form of insurance against the future, may be overvalued, especially higher education, Thiel believes.

Yet, even as education is becoming less affordable and more elitist, hinting at its overvalued status, we are being asked by everyone from President Obama on down the line to believe more intensely in its salutary benefits and overall value equation.

Thiel has identified bubbles before, in a manner that’s a little spooky. As Lacy writes:

Consider the 2000 Nasdaq crash. Thiel was one of the few who saw in coming. There’s a famous story about PayPal’s March 2000 venture capital round. The offer was “only” at a $500 million-or-so valuation. Nearly everyone on the board and the management team balked, except Thiel who calmly told the room that this was a bubble at its peak, and the company needed to take every dime it could right now. That’s how close PayPal came to being dot com roadkill a la WebVan or And after the crash, Thiel insisted there hadn’t really been a crash: He argued the equity bubble had simply shifted onto the housing market. Thiel was so convinced of this thesis that until recently, he refused to buy property, despite his soaring personal net worth. And, again, he was right.

While teacher salaries in primary education are under pressure in many political hot zones, these are not the costs Thiel believes are inflating the bubble. Instead, it’s the university system and the calls for college degrees that he’s looking at askance. More specifically, it’s the high-priced elite institutions Thiel has in his sights.

There are related factors worrying Thiel, such as the fact that in 2005 President Bush made it so that education loans can’t be canceled by a personal bankruptcy, making them more burdensome than a mortgage gone awry. Think about that for a moment — if an education fails, you’re still stuck with the debt. Not only does this reflect an intensity of belief in its value, it also shows how far education has moved from the aspirational realm of personal enrichment into the economic realm, where it risks being viewed on purely economic terms.

From where I sit, with one child in high school and another about to start middle-school, we’re talking college more and more often with friends and relatives. And the conversation is changing in an observable fashion. As the economy has degraded and fortunes have changed, more and more scrutiny on outcomes is being brought to bear, and parents are becoming more reflective of the hard economic lessons of the past few years and their own lives. And with more parents themselves reflecting on their humble educational pedigrees — state schools, mid-tier private schools, and the like — and realizing that they’re either ahead of or on-par with Ivy League peers, a lot of questions are percolating just beneath the surface.

Then there’s the exclusionary part of education, which seems tied to the economics in an uncomfortable way. Lacy reports that:

At an event two weeks ago, I met Geoffrey Canada, one of the stars of the documentary “Waiting for Superman.” He talked about a college he advises that argued they couldn’t possible cut their fees for the simple reason that people would deem them to be less-prestigious.

Thiel unsurprisingly also has a problem with the elitism streaming from economics (even though he’s a Stanford and Stanford Law grad):

If Harvard were really the best education, if it makes that much of a difference, why not franchise it so more people can attend? Why not create 100 Harvard affiliates? It’s something about the scarcity and the status. In education your value depends on other people failing. Whenever Darwinism is invoked it’s usually a justification for doing something mean. It’s a way to ignore that people are falling through the cracks, because you pretend that if they could just go to Harvard, they’d be fine. Maybe that’s not true.

Recently, Malcolm Gladwell pointed to entrenched elitism in the university system when he took apart the U.S. News & World Report college rankings:

Rankings are not benign. They enshrine very particular ideologies, and, at a time when American higher education is facing a crisis of accessibility and affordability, we have adopted a de-facto standard of college quality that is uninterested in both of those factors.

Elitism aside, one reality is that a college degree is expected when applying for your first few jobs, but quickly degrades in importance as work experience and networking opportunities increase. The question almost becomes, “How much of a college degree do I need to get my first good job?” And that answer is changing. Job prospects — or the lack thereof — are also threatening to pop the higher education bubble. As Professor Richard Vedder of Ohio University said on NPR in 2009:

. . . in reality there are a lot of jobs out there that are being created or that exists that are not jobs that require college education, and the mix between the supply of college graduates and the jobs available is moving increasingly in the direction of having fewer and fewer jobs available that really require a college education in – relative to the number of kids that are available or a number of students that are graduating. We are starting to graduate, I don’t want to say too many students, but it’s becoming more and more difficult for new college graduates to get jobs, independent of the recession.

There’s also the fact that as demands for specialized training increase, general undergraduate education is becoming more cursory for students and institutions. A recent study found that the time spent studying during the undergraduate years has fallen over time. My own speculation is that this is because more emphasis is on post-graduate education, so undergraduate education is becoming a bit more perfunctory on both sides of the desk.

So, what is anybody doing about this? Thiel, for one, has started a program called “20 Under 20,” a program he’s funding that aims to identify 20 of the brightest people under 20 years of age, and pay them $100,000 over two years to start a new company. His goal is to show that maybe even the “elite” can find more value and contribute more value by doing something besides spending years validating their elite status by going to an elite school:

Everyone thinks kids in inner-city Detroit should do something else. We’re saying maybe people at Harvard need to be doing something else. We have to reset what the bar is at the top.

It’s a disruptive thought — that perhaps by the age of 19 or 20, the best of the best should be contributing directly, spending less time fulfilling the validation processes that are inflating the bubble of higher education at the top. Especially when the excesses at the top of that bubble are causing it to drift further and further out of reach for everyday citizens.

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Kent Anderson

Kent Anderson

Kent Anderson is the CEO of RedLink and RedLink Network, a past-President of SSP, and the founder of the Scholarly Kitchen. He has worked as Publisher at AAAS/Science, CEO/Publisher of JBJS, Inc., a publishing executive at the Massachusetts Medical Society, Publishing Director of the New England Journal of Medicine, and Director of Medical Journals at the American Academy of Pediatrics. Opinions on social media or blogs are his own.


36 Thoughts on "Is Higher Education the Next Bubble to Burst?"

That applies solely to the United States. Other nations have nothing like the fee structure shown here.

The UK is moving to a system of heavy tuition fees and long-term repayments, John. From 2012-3 “home” (UK) undergrads doing the standard three yr Bachelor degree in the UK will be looking at £ 9K (US $ 15 K) a year in tuition fees. The Govt/taxes will still be subsidising degrees in more expensive subjects (e.g. science, medicine) so the fees will not vary much, if at all, by subject. The other main difference from the US, so far, is that it looks like there is going to be little difference in fees between institutions – most Univs, from Oxford and Cambridge on down, say they will be asking for the £ 9K, or close to. Whether this can be sustained is not clear – I guess that if “lower end” institutions cannot fill courses at those fees, they may have to cut them. The current UK Govt is widely believed to want to see a US-style market in fees, which the Universities in the UK have historically resisted.

The higher UK fees will be funded via tuition loans from the Govt, with repayments over 30 yrs.

The justification for the change to this system is largely economic, based on the idea that a degree confers greater lifetime earnings. So the arguments are essentially similar to the US, and there is the same question about whether the degree is really “worth” the money. Lots more UK-specific info for anyone interested on this excellent UK science policy blog:

Australia also has a “borrow from the Govt to pay tuition fees, and then repay over many yrs from income” system, called HECS. Their fees are Govt-subsidised, and lower than what is being proposed for the UK. Like the UK, the Australians charge “overseas” students much bigger fees. Indeed, in some ways what Australia do with fees, and what the UK will be doing, resembles what happens in the US for in-state and out-of-state students at the state schools.

As soon as education started moving from wholly publicly funded to fees-based, Australian universities’ undergraduate courses came under heavy pressure to graduate nearly everyone who entered, regardless of academic standards. Particularly foreign, full-fee paying students.

I graduated in the 90s when that fact seemed clear and it looks worse, and more expensive, now.

As a college professor, I see many students in my classes who do not belong in college. They are not motivated to do the book learning but feel that they must go through the motions or they will be failures. These are good kids who need other options. For instance, trade schools or careers in which they can learn and grow on the job.

The problem is that everyone feels they’ll never get their first job without a college degree. Employers need to change their attitudes, as well. Hire people who can do the job. Who cares that your managing editor has a master’s in psychology?

We’re learning to emphasize the cross-disciplinary application of skills in the Great Jobless Majors, just in this way. I’ve seen too many tech entrepreneurs with English/Philosophy degrees to ignore it – and too little done for recruitment into these majors to have reservations about it.

I’m one of those philosophy majors who has had a successful 44-year career in publishing.

I think Thiel is right on the money. I have long believed that the four-year traditional college education has been oversold as the road to success for everyone. It was a mistake to make this the norm for the masses, and now we are seeing what the long-term costs will be for many students mired in debt who are not getting the benefits that were told they would. Thiel’s new experiment is an interesting one, but limited in its scalability. More relevant is the community-college and vocational-school system already in place, which can provide more direct job-related skills at lower cost more quickly for many students. After floundering for two years in the traditional system, my son went to United Technical Institute to become an auto mechanic and has had a good job ever since.

Universities also take out huge loans to build new centers of research, hoping to lure star scientists and the grants that come with them. Reduce government funding and you could have something similar to the vacant housing developments in Florida and the South-west.

When loans are cheap and funding readily available, there is always a tendency to over-invest in new infrastructure.

“There is mounting evidence that the payoff isn’t all it’s cracked up to be.”

You mean, I assume, the common assertion that a college degree makes you earn tons more money.

I wish “money” would be the next bubble to burst. The idea that EVERYTHING is reduced to the generation of money, and nothing else has value.

Is it possible — is it even thinkable — that an education has value other than money?

Is it possible that educators might feel they have a role other than the growth of the institutions endowment fund …?

What? Education for its own sake? Like “art for art’s sake”? What a radical thought! I thought we were living in an entirely utilitarian era.

Take it from your volunteer bloggers (and commentators, right?) — there’s virtue in pure motives.

Watch Peter Thiel discuss Rewards for Students to Drop Out of College, Democracy Failing As a Technology, Libertarians and Women, and take questions during his interview (3/23/11)-

I’m the chief enrollment officer at a well respected graduate school in North America. While I think the thrust of this article might be correct in terms of the “whole” of undergraduate education, the argument is actually incoherent when you think through the implications. So yes, there are certainly many students who shouldn’t be pursuing undergraduate degrees and would be economically better off going straight to non-professional jobs — in this specific way the article is accurate. That said, an undergraduate degree is absolutely essential for nearly every profession that pays a reasonable salary and will continue to be for the foreseeable future. Therefore, the article misses the point. The parents (referenced above) who attended “mid tier” schools graduated with degrees and that is VERY different than not going to college at all.

Also, it’s a bit ridiculous to ask Harvard to create affiliates. What makes Harvard elite is that only 8% of its undergraduate applications get accepted. Like it or not, “elite” education is a social mechanism that vets the public and (though imperfectly) identifies young talent.

Where the article is correct (I think) is that college costs have risen too quickly and aren’t sustainable. Therefore, colleges need to figure out how to provide greater value per dollar spent — which is the task of all business endeavors.

And how many “professional” jobs are there really? Far fewer than the number of students currently enrolled in four-year colleges, I’d wager. There is tremendous waste in operating a system that treats all students as though they were on track to a “professional” career–and that includes the part of the system that trains athletes for pro sports.

There are plenty of professional jobs and the reality that there are more graduates available will mean even lower level jobs will go to college graduates. Think about this, if you were going to hire a secretary at a business and you had a choice between a pool of candidates without a bachelor’s degree and a pool that did which would you choose? So, the fact that there are more graduates on the market has the effect of “raising the educational (credential) bar” for everyone.

Also, entire industries have been created because there is the educational pool of talent available to support it. So actually graduating folks with advanced degrees does have the effect of creating jobs. Think about the IT industry or engineering or financial services. More graduates may depress wages in those jobs but often has the effect of creating more jobs. It’s not a zero sum game.

Finally, I have no idea what the relevance of athletics is for this discussion.

And you think it’s a good thing for students to rack up huge debt to get a bachelor’s degree so that they can become secretaries? That’s a waste of resources in my opinion. And if I had the choice, I would likely NOT choose a person with a B.A. to do secretarial work when another candidate was specifically trained for secretarial work and did it much better–not to mention the B.A. feeling frustrated in a job that didn’t take full advantage of one’s educational background.

My brother, after being a CEO of several corporations in the Northeast, moved to Colorado in the 1980s and became a mail delivery person. Some of his colleagues in the U.S. Postal Service had PhDs in math and science from places like MIT. That’s a waste of resources, too.

The relevance of sports is simply that some students spend four years in college only so that they can get drafted by the NFL. That’s a waste of resources also.

Sandy, my point is not to be filed under the “how things should be” banner, but rather the “how things are” heading. The world has changed. My grandfather was exceptionally well educated in his generation because he had a private high school diploma. My parents’ equivalent to that was a college bachelor’s degree. Today, young people need a master’s to be roughly equivalent to the HS diploma from two generations ago. My point is simply that the bar gets raised by virtue of “supply” on the market.

Furthermore, you’ll note that the day of the secretary is quickly slipping away in favor of “administrative assistants” who do a far greater array of tasks; we call them “coordinators” at my institution.

All this is simply to say that bachelor’s level training is rapidly becoming the basic standard for entry into fairly low level professional jobs. I’m not saying that this is the way it should be, only that it is the reality of the developed world.

Employers often avoid candidates who they think are “overqualified” for a position. If you’re hiring someone, you want them to stick around for a long time. If your candidate is vastly overqualified for the position, you have the suspicion that they’ll leave as soon as a job that better suits their skill set comes along. So you pass them over for someone without the advanced degree.

David, the Harvard Business review just ran an article claiming the opposite. That now more employers are welcoming “overqualified” candidates for a variety of reasons.

I agree with Amy on this point, too. At Penn state Press we tried having B.A. editorial assistants take care of the clerical work that a “secretary” had done previously. The experiment failed. We went back to hiring people who could actually do the clerical work with a high degree of skill.

I am a graduate student in animal science. The research farm that I do my research had to look for a new dairy manager due to the previous one retiring. We had a pool of applications where we actually preferred a master’s degree (due to them understanding research), however we interviewed only 3 out of 11 applicants that were deemed the best. Only one of these had a Master’s degree and would have been after the interview the last person we would have hired. The other two candidates had other qualities and experiences that made them superior to the master degree candidate.

I think your point is that the academic qualification does not correlate with ability to do the job. But I think you (and other posters here) would agree that academic qualifications correlate well with your ability to get a job interview. (How many people were interviewed for dairy manager that had no college degree?).

I believe the economic role of higher education has become simply a gauntlet that young people must go through in order to reduce the number of candidates that are deemed “qualified” for the job. The bar will be be raised until the number getting through yields the results that established power requires.

A system in which a relatively small number of people, heavily burdened with debt, are deemed “qualified” for the “professional” jobs, yields a malleable professional work force, and an over-subscribed pool of “cheap labor” for non-professional jobs.

I would like to ask Kent, if he is still listening to this thread, whether he prefers his job as an Editor or as a Janitor? I suspect he will say “editor”, and not only because editors makes more money, but also because it is a “nicer” job to be doing. In a “free market”, it’s odd that the “nice” jobs are also the better paid jobs. If everyone could choose between Editor and Janitor, who would choose to be a Janitor? In order to have anyone be a janitor, there would have to be a premium paid to Janitors. In a free market you would have to choose between “nice” and “better paid”.

But nobody wants that choice. They want both the “nice” and “better paid”, which requires a means of coercing other people to have the jobs which are “nasty” and “lower paid”.

Our education system is part of that coercion.

So is unemployment. We do not have unemployment because of lack of jobs. We have lack of jobs in order to have unemployment. Without unemployment, the price of work would equalize. You would have to pay someone to be a janitor, an amount that was closer to, if not higher than, an editor. If, in order to survive an operation, I need both a competent surgery and a competent sterilization of the operating theater, why is the contribution of the surgeon any more intrinsically valuable than that of the cleaner?

While I have no doubt that some people are better able to do one job rather than another, our economic and education system isn’t about sorting that out. It is a means of ensuring that there will always be rich people by ensuring that there will always be poor people.

@ The Grad Student: Did the dairy manager you eventually hire have a bachelor’s degree? If yes, you have made my point for me.

I think beyond education, there is ethics, and while I’m sure it’s just bluster that you say “I plan to tell my kid to lie,” that’s unethical, no matter what degree you have, if any.

You may not want to burden your child with debt to learn sophistries, but you should install a good moral compass no matter your opinion of higher education.

I think you’re accusing people of things recklessly, and published this comment to let our readers see more of how you think. They can draw their own conclusions.

Hi Amy, I’ll do you the favor of being less hostile to your credentials than you were to mine when you claimed that “David has no idea what life is like outside the academy…”

You couldn’t be more wrong about me and (like Kent) I think your comments are irresponsible and speculative in a number of ways.

I agree with a lot of what Amy says here, but I would go one step more. The actual education that liberal arts graduates have received is open to question. The typical approach is to allow students to choose from a wide range of courses, like picking food from a smorgasbord, subject only to very loose “distribution” requirements. But few students know enough to select courses that interconnect in intellectually meaningful ways. E.g., how many students know that to understand medieval philosophy properly, you first need to study ancient Greek philosophy? Or that to understand Marx you need to have read Hegel first? So, even within a single department, courses are not taken in a sequence that makes sense and builds up a coherent framework of knowledge. And across departments the situation is even worse, as teachers exist in their own silos of specialization and rarely devote any time to thinking about how what they teach links up with what their colleagues teach. The whole system is badly in need of reform. Given the huge amount of money being spent on education today, students deserve much more than they are getting. All the more reason for them to think about what they can learn in vocational and other schools that might actually help them live an economically viable life.


There were comments from an Amy Charles here. I have deleted them. The email address she provided turned out to be the general email box for an Illinois company, and not a personal email address. You may still see responses here to her comments, since I didn’t want to erase the related materials entirely.

Sorry for the trouble. Moderating comments is an art, not a science.


The irony is that the push to convince everyone of the value of higher education (which I believe it definitely has) has degraded the value of higher education. Education provision is something that is very difficult if not impossible to do the more people you try to provide it to. Bringing more and more students into universities and colleges force the institutions to pander to less qualified students, count on drop-outs to ensure quality for those who stay, and depress teaching staff who have a harder job.

Of course this is all under the pressure of the “non-educated masses” that sneer and anything academic (which is a cause, effect and neutral process in all this).

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