Is Education a Bubble?

My mother’s father spent the majority of his adult life working in the shipyards. He graduated at the top of his high school class, but was the eldest of ten children which meant no college. My father’s father was a scholarship student who later became an Episcopalian minister.

Neither of my parents were thus born into privilege. Both were born into households that emphasized education. You will go to the best school that you can get into, they were told, it’s your ticket to a better life. Which they did. And while definitions of better vary, my parents certainly had a higher standard of living, courtesy – in part – those educations, than their parents.

What their parents did for them, my parents sought to do for my brother and myself. In spite of rising tuition rates, we attended highly ranked, costly private institutions. That they could ill afford, truth be told.

This traditional valuation of education has lately been challenged, both on grounds of cost and of benefit. This is appropriate. We must always question and assess the validity of what we’re told, what we’ve come to believe.

Typically, to answer the question of whether costs are appropriate it is necessary to examine the question of benefits. In the case of higher education, it is not. As this graphic from the New York Times attests (the Washington Post ran a similar story), the cost of schooling has not only outpaced the consumer price index (CPI) and median family income, but healthcare. This trajectory – which has student debt approaching one trillion dollars – is unsustainable, even to the schools themselves.

My wife’s alma mater, Middlebury, last year announced its intention to cap growth of its comprehensive fees at one percentage point above the CPI. Previously, Princeton and my own alma mater, WIlliams, have frozen tuition for one year periods in response to concern about rising costs. No comprehensive solution to tuition costs is apparent at present, however.

The justifications for this escalation are unknown. It’s reasonable to expect that they are a function in part of both rising operational costs and an attempt to offset substantial market losses for hedge fund sized endowments. But as these and many other elite institutions are privately run, the simplest reason is probably this: the market bore, and continues to bear, the costs. The question is for how much longer, and what the unintended consequences are to the institution in terms of student composition.

Accepting that the costs are prohibitively high, however, criticism of the relative merits of an education are misguided.

PayPal founder Peter Thiel reignited this debate with his TechCrunch interview. Cost was his focus, but he also took exception to the idea of exclusivity.

“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?”

Setting aside the fact that his “20 Under 20” program is itself exclusive and counter-examples such as the Harvard Extension School (disclosure: I’ve completed two classes there), which makes a Harvard education more broadly available (see this Kansas resident Harvard Masters graduate here, for example), the question is why this exclusivity exists.

The answer, to me, is scale. Distinction and achievement are necessarily rivalrous resources.

Between the birth of his father and my father the United States welcomed around thirty-four million new souls. Between mine and my father’s, the number was seventy-five million. Mine and my nephew’s, ninety-two million.

Given that talent identification has been historically, and remains in spite of the best efforts of our industry, systemically inefficient, differentiation is of critical importance in the face of long term population growth. Most employers cannot scale their hiring processes effectively. When applying for jobs my senior year at Williams, I bypassed the initial hiring screen for Anderson Consulting (now Accenture) through a friend who worked there, but my candidacy was subsequently killed because my GPA was below their minimum requirement. I understood this completely. The metric may not have been an accurate assessment of my abilities, but it was an approach that could be reproduced at scale.

One of the functions of education from the perspective of employers has been filtration. An employer hiring a graduate from Harvard or a similar institution is unlikely to able to assess on any important level whether or not the candidate is a good fit. Gaining admittance to and graduating from an elite institution is, however, a non-trivial achievement in the majority of cases. If there were a hundred Harvard affiliates, as Thiel proposes, the achievement would become non-differentiating and thus depress the value for both student and employer.

Seth Godin calls this buying a brand, and asks whether

“an elite degree deliver[s] ten times the education of a cheaper but no less rigorous self-generated approach assembled from less famous institutions and free or inexpensive resources?”

There are a variety of benefits to a so-called elite degree over free resources, from quality of instruction to the network you build. But brand is also part of that, because it provides differentiation in an increasingly crowded workplace.

Fortunately, there are many emerging opportunities for talent to stand out. Github as a resume is a wonderful concept, attacking as it does inefficiencies in the hiring process. Likewise programs like TechStars, Y Combinator, and Thiel’s own “20 Under 20”. These are excellent as far as they go. But unfortunately, these are not provide a model for non-technical industries. Nor do they address issues of exclusivity; they are, in fact, more exclusive than elite educational institutions. Y Combinator’s acceptance rate is approximately 3%, Harvard’s hit an all time low of 6.2% this year. Very few people, relative to population, are in the technology industry. Of those that are, even fewer are admitted to YC-style incubators.

The list of evidence that a college education is not a prerequisite for success is long. Besides well known non-graduates like Damon, Gates or Zuckerberg, see the college dropouts Hall of Fame. I know, work with and have immense respect for both high school and college dropouts; many of whom have accomplished a great deal more in their careers than I may reasonably expect to.

Nor is it reasonable to suggest that everyone will benefit from college: the lack of a strong vocational education system in the United States is a real problem. Both for students that are incurring debt that the education is unlikely to offset and for a job market that is thus shorted trained workers.

From a statistical perspective, however, the question is not whether you can be successful without a college education (assuming a non-vocational career path), but what the probability is that you will be. If the success rate for entrepreneurs was high, venture capitalists would be unnecessary. What are the options if you are unsuccessful? Some doors will be closed to non-college graduates.

Lost in discussion of costs and exclusivity are the soft benefits of college attendance. As I told incoming freshman this past September, much of the value of an elite education are the people you meet, what you learn from them, and the opportunities these relationships open later in life. I have counseled and helped place alums, just as they have done the same for me. Being in close proximity to intelligent and motivated kids for a four year period has value. Networking is not exclusive to education, clearly, but startup life doesn’t necessarily yield the same opportunities for networking and broad based education because of size, the stresses of the job and a necessary lack of diversity: startups tend to self-select a certain type of individual.

Ultimately, assessing Thiel’s argument that education is a bubble depends on definitions. Few would disagree that costs are disproportionate to both value and economic context at present. If this is a bubble, however, higher education must give way to an alternative education model in sufficient volume that its prices drop dramatically. It is difficult to conceive of this occurring: however imperfect the system is at present for both students and employers, would be solutions are imperfect.

Khan Academy and similar efforts, for example, may well disrupt the process of education, democratizing access to high quality resources: an effort to be applauded. But even assuming the process of educating can be disrupted by technology, the process of hiring the educated remains: if you remove the filter that colleges represent, how will employers manage the volume?

Like healthcare, the outsized rise in the costs of an education are not sustainable. But I remain unpersuaded that forgoing a college education would be beneficial to all or even most would be start up entrepreneurs.

If that’s a bubble, then, so be it.