Monday, April 11, 2011

Today's Higher Education Bubble

Mr. Thiel is the cofounder of PayPal and has lots of contrarian opinions on lots of things. Agree or not, what he says makes some sense:
So Friday, as I sat with Thiel in his San Francisco home that he finally owns, I was curious what he thinks of the current Web frenzy. Not surprisingly, another Internet bubble seemed the farthest thing from his mind. But, he argued, America is under the spell of a bubble of a very different kind. Is it an emerging markets bubble? You could argue that, Thiel says, but he also notes that with half of the world’s population surging to modernity, it’s hard to argue the emerging world is overvalued.

Instead, for Thiel, the bubble that has taken the place of housing is the higher education bubble. “A true bubble is when something is over-valued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

Like any good bubble, this belief– while rooted in truth– gets pushed to unhealthy levels. Thiel talks about consumption masquerading as investment during the housing bubble, as people would take out speculative interest-only loans to get a bigger house with a pool and tell themselves they were being frugal and saving for retirement. Similarly, the idea that attending Harvard is all about learning? Yeah. No one pays a quarter of a million dollars just to read Chaucer. The implicit promise is that you work hard to get there, and then you are set for life. It can lead to an unhealthy sense of entitlement. “It’s what you’ve been told all your life, and it’s how schools rationalize a quarter of a million dollars in debt,” Thiel says.

Thiel isn’t totally alone in the first part of his education bubble assertion. It used to be a given that a college education was always worth the investment– even if you had to take out student loans to get one. But over the last year, as unemployment hovers around double digits, the cost of universities soars and kids graduate and move back home with their parents, the once-heretical question of whether education is worth the exorbitant price has started to be re-examined even by the most hard-core members of American intelligensia.

Making matters worse was a 2005 President George W. Bush decree that student loan debt is the one thing you can’t wriggle away from by declaring personal bankruptcy, says Thiel. “It’s actually worse than a bad mortgage,” he says. “You have to get rid of the future you wanted to pay off all the debt from the fancy school that was supposed to give you that future.”

But Thiel’s issues with education run even deeper.
After an intro like that, you know you have to read the whole thing.

3 comments:

socalmike said...

It depends on what you're studying. If you want to go into science or engineering, I believe that you ARE investing, as there are still MANY jobs in those areas. I know, I teach a high school engineering program.

As far as the "liberal arts" majors, I couldn't agree more with Thiel. What is a psych or lib studies major going to do for you? No, really. Teach? Yeah, right, like we don't have enough teachers already. Like he said, pay a quarter million to read Chaucer. How about 25k to go to Cal Poly Pomona for 4 years and get a job right out of school? That's more like it.

Go into science or engineering - no bubble there.

mrelliott said...

A few years ago, I read an article that stated the highest earnings were in the sports and entertainment industries in our country. If you have athletic skills and talent, you don't need any higher education at all. If you don't, you go to college get a degree, work your butt off to be middle class and get hit with the most taxes.

I always felt the advise, "Go to college, get a degree.", was to ensure a large middle class, so the taxes could fund our country.

The most recent CNBC report puts doctors as the highest paying job in our country. The list is short considering how diverse our country is, and doesn't even list business owners.

leftcoastref said...

$25k? that sounds a little low. Cal Poly Pomona is still in the CSU system, so it is relatively cheap (compared to USC/Stanford/Biola) but I would think closer to $80k for 4 years. But I agree, a degree in engineering has much less difficulty finding a job. Just don't expect to be a teacher these days!!