Peter Thiel, co-founder of PayPal says We’re in a Bubble and It’s Not the Internet. It’s Higher Education.

“A true bubble is when something is overvalued 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.

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.”

Thiel’s solution to opening the minds of those who can’t easily go to Harvard? Poke a small but solid hole in this Ivy League bubble by convincing some of the most talented kids to stop out of school and try another path. The idea of the successful drop out has been well documented in technology entrepreneurship circles. But Thiel and Founders Fund managing partner Luke Nosek wanted to fund something less one-off, so they came up with the idea of the “20 Under 20″ program last September, announcing it just days later at San Francisco Disrupt. The idea was simple: Pick the best twenty kids he could find under 20 years of age and pay them $100,000 over two years to leave school and start a company instead.

Two weeks ago, Thiel quietly invited 45 finalists to San Francisco for interviews. Everyone who was invited attended– no hysterical parents in sight. Thiel and crew have started to winnow the finalists down to the final 20. They’ll be announced in the next few weeks.

While a controversial program for many in the press, plenty of students, their parents and people in tech have been wildly supportive. Thiel received more than 400 applications and most were from very high-end schools, including about seventeen applicants from Stanford. And more than 100 people in his network have signed up to be mentors to them.

Thiel thinks there’s been a sea-change in the last three years, as debt has mounted and the economy has faltered. “This wouldn’t have been feasible in 2007,” he says. “Parents see kids moving back home after college and they’re thinking, ‘Something is not working. This was not part of the deal.’ We got surprisingly little pushback from parents.” Thiel notes a handful of students told him that whether they were selected or not, they were leaving school to start a company. Many more built tight relationships with competing applicants during the brief Silicon Valley retreat– a sort of support group of like-minded restless students.

Student Loan Debt Passes Credit Card Debt, Expected to Hit $1 Trillion

The New York Times reports Burden of College Loans on Graduates Grows

Student loan debt outpaced credit card debt for the first time last year and is likely to top a trillion dollars this year as more students go to college and a growing share borrow money to do so.

“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of and, who has compiled the estimates of student debt, including federal and private loans.

Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993. Last year, graduates who took out loans left college with an average of $24,000 in debt. Default rates are rising, especially among those who attended for-profit colleges.

Some education policy experts say the mounting debt has broad implications for the current generation of students.

“If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them,” said Lauren Asher, president of the Institute for College Access and Success. “Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be options for people who are paying off a lot of student debt.”

In some circles, student debt is known as the anti-dowry. As the transition from adolescence to adulthood is being delayed, with young people taking longer to marry, buy a home and have children, large student loans can slow the process further.

In 2009, the Obama administration made it easier for low-earning student borrowers to get out of debt, with income-based repayment that forgives remaining federal student debt for those who pay 15 percent of their income for 25 years — or 10 years, if they work in public service.

Deanne Loonin, a lawyer at the National Consumer Law Center, said education debt was not good debt for the low-income borrowers she works with, most of whom are in default.

“About two-thirds of the people I see attended for-profits; most did not complete their program; and no one I have worked with has ever gotten a job in the field they were supposedly trained for,” Ms. Loonin said.

“For them, the negative mark on their credit report is the No. 1 barrier to moving ahead in their lives,” she added. “It doesn’t just delay their ability to buy a house, it gets in the way of their employment prospects, their finding an apartment, almost anything they try to do.”

Obama’s Ridiculous Solution

Obama’s solution is for kids to graduate from school deep in debt work 10 years in public service to get out of debt. At the end of 10 years, whatever education the kids got in school would be useless.

Moreover, most of those public service jobs will be very low paying, and taxpayers would get stuck with the bill.

Who are those praising the education system?

Why the educators of course. Here are a few quotes from the article.

  • “College is still a really good deal,” said Cecilia Rouse, of Princeton, who served on Mr. Obama’s Council of Economic Advisers.
  • Sandy Baum, a higher education policy analyst and senior fellow at George Washington University, a co-author of the report, said she was not concerned, from a broader perspective, that student debt was growing so fast.
  • Susan Dynarski, a professor of education and public policy at the University of Michigan, said student debt could generally be seen as a sensible investment in a lifetime of higher earnings.

School a “Good Deal”?

In Fall of 1971 when I started college it cost something like $250 a semester for an engineering degree at the University of Illinois. When I graduated it was something like $450 a semester.

That was a “good deal”.

A college education is now a good deal for the administrators, the professors, and the football coaches who all make big salaries with enormous benefits, then have the gall to whine for more benefits.

The problem is made worse by throwing money at the problem. Every cent in education grants goes to higher fees and higher administration costs. Student loans have done four things, all of them bad.

  1. Jack up the cost of education
  2. Make students debt slaves for the rest of their lives
  3. Unjustly hand over huge profits to schools like the University of Phoenix at taxpayer expense
  4. Add to the national debt

The best thing to do with student loans would be scrap the program entirely.

Please consider

Schools compete on research and research drives up costs. So do outrageous salaries for football coaches and administrators. Ironically most of the professors involved in research do not even teach. The kids get little or no benefit from the “research”. Instead the kids are taught by someone praying to get tenure.

Solutions – More Competition

Pell grants need to stop cold turkey, more online schools need to be accredited. Anything and everything that lowers education costs should be fair game. The goal should be the most education for the least cost, not the least education for the most cost.

Guaranteeing student loans while throwing taxpayer money at the problem virtually assures massive waste.

The biggest need is more competition. The free market would work and work well if there was not a monopoly on accreditation.

Except for lab work, most classes could easily be taught online, for a song. Let’s accredit a wide variety of classes taught from India over the internet. Fraud would not be an issue if the mid-term and final exams are in person. Lab courses have to stay here, but I am quite sure there are numerous ways to drastically lower costs of those courses.

Student loans should not be guaranteed. That would settle the hash of places like the University of Phoenix right away.

If some kids or their parents want to pay outrageous sums of money for “prestige schools”, let them. The vast majority of students would opt for something far less expensive if given the chance. I say give them a chance.

Mike “Mish” Shedlock
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