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 Pets.com. 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.
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.