College education bubble ready to pop
Published: Sunday, June 5, 2011
Updated: Tuesday, June 7, 2011 00:06
Peter Thiel has many impressive points on his résumé: Yale law graduate, co-founder of PayPal, venture capitalist and hedge fund manager.
The 47-year-old billionaire is well known among business circles as the man who foresees the burst of economic bubbles long before anyone else does. He sold PayPal right before the Internet bubble of 2000. According to The Economist, he later became the sole voice speaking out against the housing bubble; the same bubble that notoriously burst in 2007, leaving us in the economic rubble we stand in today.
Why should we as students care about this man? Well, he's now speaking out against a new bubble that he sees due for popping, and we're currently investing in it: college education.
Thiel's got the facts on his side.
A bubble occurs when a product is valued at many times higher a rate than what it is actually worth.
"A true bubble is when something is overvalued and intensely believed," Thiel said.
This was true of Internet stocks: investors believed the price could never fall since the Internet was such a new and hot commodity. Investors continued to throw money at it, until eventually the whole system fell apart and left the economy reeling for years to come. The same was true of the housing bubble; investors believed that house prices could never fall, so they gave more and more mortgages to worse and worse creditors until that sham also fell into ruins.
Thiel believes this is true of college education as well — way overvalued and overrated.
"People are not getting their money's worth, objectively, when you do the math," Thiel said in an interview in January.
And he's putting his money where his mouth is. On May 25, he announced the picks for his "20 Under 20" scholarships, where he gives $100,000 to 20 students who forgo college and instead start their own business ventures, according to an interview in the National Review.
With Republicans in the Florida House and Senate seemingly hell-bent on cutting education spending, the outlook appears grim. The new 8 percent drop in college revenue passed by the Legislature forced the UCF Board of Trustees to raise tuition 15 percent in the upcoming year and cut Bright Futures Scholarships by 20 percent, according to the Daytona Beach News-Journal.
Further exacerbating the problem, Gov. Rick Scott further diluted the quality of college education last Friday by vetoing $220 million in college projects — $21 million of which was allotted to UCF. Apparently, Scott is under the impression that college education is too cheap. The budget he's ushered in is an effort to balance the Florida budget on the backs of its students.
So is college education an overpriced and overrated sham like Thiel believes? When it comes to price, Thiel is spot on.
According to the Sun Sentinel, in 2010 the average student debt after college was $28,198, a staggering figure considering the current unemployment rate in Florida stands at more than 10 percent. According to n+1 Magazine, the price of tuition has increased by 900 percent since 1978.
Furthermore, thanks to a bill passed in 2005 by the Bush Administration, student loans also hold the unique position of being the only debt that one cannot escape from, even in bankruptcy. As prices are rising exponentially, the quality of college education remains stagnant.
According to a recently published book titled "Academically Adrift: Limited Learning on College Campuses," 36 percent of students showed no significant increase in learning after four years in college, and those that did progress displayed a modest increase. Since 2005, the amount of defaults on student loans has increased every year. In fact, the Department of Education is projecting a default rate for the class of 2008 to be between 7-13.8 percent.
With numbers as dismal as these, it's clear that Thiel is on to something; education costs need to come down, and fast. When budgets like the one signed by Scott on May 26 increase our already record high tuition, we need to stand up and say "enough is enough!" We need to let Scott and his cronies in Tallahassee know that balancing their budget on the backs of their college students won't stand. If we don't, the American college educational system as we know it may end forever.