Peter Thiel on the "Higher Education Bubble"

Applying to College
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<p>Do anyone think that at the heavily endowed tippy top schools are becoming like US cities, in a way, where the population is the rich (full-pay and mostly pay) and the poor, with not too much in the middle (who may be heading more and more to State U and possibly full pay at less selectives)?</p>

<p>Yes, I do think this. Sure, to lorem’s point, some Ivies let students attend free if their parents’ HHI is less than $60K. But what about assets? Many if not most middle income families have some savings, and there’s a limit to what you can put into a protected vehicle such as a 401K or IRA. Our HHI is well under $100K, but our savings are the killer. FAFSA apparently thinks we’re kajillionaires. Not exactly!!</p>

<p>Besides which, Harvard’s and Yale’s generous policy is not shared by most other highly selective schools. </p>

<p>I do think the middle is being squeezed. I don’t know how that can be gainsaid. Exceptions only prove the rule: When it comes to affording selective / prestigious private schools, middle income families, by and large, are up a creek. And yes, there is a documented trend toward choosing state universities over selective privates. Articles about this trend keep popping up everywhere.</p>

<p>My BIL, a doctor, has five very bright kids, including a National Merit Finalist daughter. The two oldest, the only ones who have matriculated so far, both attended the University of Wisconsin. (They thrived there in the Honors College, and the NMF daughter is now deciding among a bunch of Ivies and Stanford for graduate school. The other kid is working for a hedge fund on Wall Street and raking in the bucks…LOL, don’t ask.) When well-heeled doctors start choosing state universities for high-achieving kids, well, I think one can spot a trend.</p>

<p>I agree that, when the bubble bursts, the schools which will suffer most will be the medium-selective privates, the less-than-premium colleges that charge a king’s ransom for an education that’s no better than that at any decent state university. Many of these schools have student bodies whose average SAT scores are on par with those of non-flagship publics’ student bodies. E.g., here in NC, we have several non-flagship schools – Apaplachian State, UNC Asheville, UNC Wilmington, NC State – with average SAT scores between, say, 550-650. This compares VERY favorably with the stats for many private colleges…yet the in-state publics charge just a fraction of what the privates charge. As the economy tightens, middle income parents ask themselves: “Is it really worth it to shell out the extra $$$ for Elon, say, when the COA for Appalachian is what? $15,000 maybe?”</p>

<p>It’s just common sense, and in a tough economy, common sense becomes awfully attractive. You can’t eat prestige. :)</p>

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<p>It goes beyond just common sense; there’s a perceptual change underway. Most Baby Boomers having been saying yes to their precious children for most of their lives. It’s only been in the last 3 years or so, that many more parents have started saying, no, we can’t afford it anymore. It started with overpriced designer jeans and athletic shoes; how long until it applies to mid-range private colleges that add no value over their more frugal public counterparts?</p>

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<p>lorem, all I can say is: Amen!</p>

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<p>Is it lost on everyone that this thread was started three years ago and rather than bursting (in very difficult economic times) the bubble has expanded?</p>

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<p>4-12-2011 is three years ago?</p>

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<p>:D:D:D</p>

<p>Seriously, though, does anyone have any article or recall anything from ca. 2008 warning of an impending higher education bubble?</p>

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<p>There were two other articles that came out that built on the Thiel interview:</p>

<p>Doug Short blog: [Inflation</a>, The Education Bubble And The Odds Of A Disastrous Retirement](<a href=“http://www.businessinsider.com/inflation-the-education-bubble-and-the-odds-of-a-disastrous-retirement-2011-4]Inflation”>Inflation, the Education Bubble and the Odds of a Disastrous Retirement)</p>

<p>Mish Shedlock’s analysis (referred to in Short blog) [Mish’s</a> Global Economic Trend Analysis: The “Education Bubble”; Student Loan Debt Passes Credit Card Debt, Expected to Hit $1 Trillion](<a href=“http://globaleconomicanalysis.blogspot.com/2011/04/education-bubble-student-loan-debt.html]Mish’s”>Mish's Global Economic Trend Analysis: The "Education Bubble"; Student Loan Debt Passes Credit Card Debt, Expected to Hit $1 Trillion)</p>

<p>Re: doctors and their kids. Back when D1 was in 8th or 9th grade, I was chatting with a fellow mom that I knew from school events. I knew her husband was a doctor who, based on where they lived, apparently did quite well. She mentioned that her DH had told their son (excellent student, BTW) that if he went the state flagship route, he’d help generously with med school. I was shocked. At that point, I thought that if you were in his position with that lifestyle, that you’d be pushing & paying for your kids to go to a top 20 school. It got my attention & I noticed it was a fairly common sentiment especially if the kids were planning on following in the parents medical footsteps.</p>

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<p>When my daughter was about 10 and thinking she wanted to be a doctor (that was probably 14 careers ago), I asked my doctor what she suggested for undergraduate school. Being the humble woman that she is, she said that she had taken a test in high school and a small LAC offered her a full scholarship to attend there and she did [of course we know she was a NMS]. She had been very pleased with her LAC and said that when she got ready to attend med school three professors wrote letters and then sat down and combined the three into one fine letter for her. She then said that people should only attend their in-state medical schools or they graduate with too much debt.</p>

<p>This woman worked at Hopkins and was married to another doctor. They have now moved on to some place in Texas, but I am sure that she will keep her level headed ideas as her own family grows.</p>

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<p>As a result, the public universities are receiving more applications, so they are becoming more selective. Budget cuts are also causing them to raise in-state tuition, while giving them more incentive to bring in out of state (full pay) students.</p>

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<p>^ Sorry for typo, BTW. That would be Appalachian, not Apaplachian. :D</p>

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<p>As a current Ivy league student, I can assure you that I am paying nowhere near 50k in tuition, and it is actually cheaper than some of the in-state options because the school is so generous with its financial aid. I don’t really see why people are so quick to write off Ivies as country clubs and places which pile on mountains of debt, when it is most certainly not the case for a significant portion of the student population. I suppose it is easy to see the large price tag on the front of the product and arrive at all sorts of invalid conclusions.</p>

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<p>Most people aren’t talking about the Ivies when they discuss the big debt problems. The Ivies are still full pay for a number of us who are not among the super rich.</p>

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<p>In 2004, the median income of U.S. households was $44,389 ([Source](<a href=“http://www.zdnet.com/blog/itfacts/us-median-household-income-was-44389-in-2004/8830]Source[/url]”>http://www.zdnet.com/blog/itfacts/us-median-household-income-was-44389-in-2004/8830)</a>). For the Class of 2008 at Harvard, the median family income of applicants was $119,970; half of all applicants came from households earning $119,970 or more.</p>

<p>And if that were not stark enough, the fifth percentile of applicant family income was $46,989. So in 2004, most (>50%) American households earned less than $44,389, but among those applying to Harvard, less than 5% did ([Source</a>, Table 2](<a href=“http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1080&context=workingpapers]Source”>http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1080&context=workingpapers)). </p>

<p>Lastly, Table 7 shows that median neighborhood family income increases as you go from applied to admitted to enrolled. Make of that what you will.</p>

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<p>This is a pretty cool thread…I have friends going into BA programs next year, who are unsure, and they think they’ll end up becoming a teacher or lawyer or something. Now here (canada) the cost for tuition is cheaper and the way our student loans work helps but regardless going into uni unsure and doing a BA is a waste of money. I think more people should look at the trades since you get paid on the apprenticeship and your basically guaranteed a job afterward…And whats with all these random degrees? What can you do with a degree in peace and conflict studies??</p>

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<p>They will earn 1,000,000 more in their lifetime, that may be true, but that 1mill is nothing when you have to pay down 250K at 6% or so a year. If you didnt go to college and went to some tech school, out of HS you were making 50K a year. In the four years when your college friends have accrued 1/4 million of debt, you will have saved up 100K or so and could be investing it at 7% or so a year. So while every year they are paying out about 15K in interest on their student loans they are raking in 7k on their investment. Thats a 22k diffrential right there. </p>

<p>I would hate to go to school and get some b.s art history or Asian studies degree and not only have a ton of debt on my plate but a low paying job.</p>

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<p>[Response</a> to the original article on The Economist](<a href=“Is it really the next bubble?”>Is it really the next bubble?)</p>

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<p>@fabrizio:
“In 2004, the median income of U.S. households was $44,389 (Source). For the Class of 2008 at Harvard, the median family income of applicants was $119,970; half of all applicants came from households earning $119,970 or more.”</p>

<p>Perhaps that is because most U.S. housholds who’se income is around 44,000 look at the Ivy price tag without researching financial aid and are discouraged from applyng? I know that I for one wouldn’t have to worry about loans from most of the schools that I’m applying to, including the Ivies. The only schools I would have to take out loans for are in-state or lesser endowed schools.</p>

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<p>Most of us don’t have the smarts to be founders of Apple, Microsoft or Facebook. </p>

<p>There is certainly a compelling argument to not pay $225,000 so your child gets a degree in 3rd-Century Chinese History. </p>

<p>At the same time, this country produces far too few high school students fully equipped to take on the higher mathematics, higher sciences and engineering needs we have in our own industries today. There are jobs out there for these kids, but not qualified students to fill them. </p>

<p>The liberal arts and Ivy students bring together a wealth of really bright kids making it possible for key connections to be made and to accomplish the 2:00 AM “ah ha” moments that think up the next start ups; but we need tremendously more young adults here to make those great ideas come to fruition and keep the creation of awesome new products, innovations and industries within this country.</p>

<p>I wish more of us would pull out the check-book around 5th grade and get our kids all the tutoring they need to truly comprehend and master the maths and the sciences. They can still be life learners, artistic, writers, love history and philosophy and have causes to volunteer and help meet the sociological and psychological needs of others in our communities. It will remain, however, that the real needs are in the hard sciences and the bio-sciences where the state research universities are equipped to provide fine educations that often dwarf similar offerings at ivy league schools. This at somewhat affordable [albeit rapidly rising] prices. </p>

<p>As long as we keep educating the world’s brightest kids who come here to learn from the best and then we send them back home with jobs that could be held by competently prepared US kids, there will not be an education burst of the bubble. There’s simply too much international capital being imported for education to keep that from happening.</p>

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<p>true that</p>

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<p>if i were to point fingers, i’d say it’s the american public school system in general</p>

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I’m sure that all those engineers and scientists graduating from college last year or 2 (and this year) will be happy to know there’s more jobs that graduates out there. Of course I’m being sarcastic… the poster might want to get a little informed before posting stuff like this.</p>