Wednesday, February 2, 2011

Is higher education the next bubble?

Here is a thought-provoking interview with Peter Thiel. Thiel is now offering a fellowship to entrepreneurial youth to NOT go to college.

"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...Probably the only candidate left for 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."

"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."

 "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?"

My own take is that the return on investment for college varies widely with what one studies in college. Yes, the skills gained from obtaining an English BA translate less directly into private sector skills than say, a computer science or engineering degree. But ultimately, we need to sit down and have a real conversation about how educated we want our country to be, both how broadly educated and how specialized. We also need to talk about how we want to scale the educational system and how we want to pay for it.

3 comments:

  1. Thank you for the opportunity to yak re. higher education being the next bubble. I believe such a broad generalization erronious, that a charactorization as in for a projection of future flacid cash flows more realistic. Major American demographic change, the aging of the post WWII "baby boomers" is redirecting a large part of the American cash flow into retirement checks and retiree health care coverage. This reduces the amount of federal and state monies availabe for the support of educational institutions and their students and prospective students.
    Another negative aspect of American cash flow issues is that anemic tax revenue receipts are in substantial part paying interest on federal debt. Much Income Tax & Social Security Tax revenues have been lost due to so many American jobs that have been moved beyond our borders. Next, Americans send much of their money outside of their country to purchase products and services formerly produced in America. What good for American education does a few trillion American dollars do when sitting in Chinese and other Banks?
    -claude s. thomas

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  2. This is why we need to invest in research and education - we know we can't compete in producing "stuff", so we need to still compete in producing ideas!

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  3. BUT WHAT ABOUT THE VERY MAJOR ONGOING "THEFT OF INTELLECTUAL PROPERTY RIGHTS," SOME OF IT BY REVERSE ENGINEERING?
    AND SOMETHING ELSE, MOST OF OUR AMERICAN POPULATION, LIKE POPULATIONS PROBABLY ABOUT EVERYWHERE IN THE WORLD, IS "'OI POLOI" WHICH MUST BE ABLE TO SELF SUSTAIN ADEQUATELY OR SUFFER AND PERISH. WE'VE GOT TO BE ABLE TO PRODUCE, USE, & TRADE WITH EACH OTHER AT LEAST OUR OWN "STUFF:" FOOD, CLOTHING, SHELTER, TOOLS, MEDICINES, EDUCATION, CIVIL STABILITY, ETC..
    -CT

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