I wrote about this a couple of weeks ago and Anya Kamenetz, Annie Lowrey, Sherman Dorn, Matt Yglesias and others have also weighed in on whether Peter Thiel is on to something and there’s subprime mortgage-like bubble about to burst in higher education. I don’t think there is, because houses and degrees are very different things.
That said, there are definitely huge inefficiencies lurking inside the higher education market, and both those problems and the present confusion about those problems stem from an under-appreciation of how complex and diverse seemingly-similar college degrees can be. Broadly speaking, college degrees can signal at least four distinct and important things:
1) The degree-holder has won an admissions tournament.
2) The degree-holder has undergone a process of acculturation in which he or she has learned how to think, talk, and act like those who have earned degrees before him or her.
3) The degree-holder has overcome a series of obstacles and completed a sequence of tasks necessary to earn a defined number of college credits.
4) The degree-holder has acquired a certain set of knowledge and skills.
The value of a degree from an Ivy League university is overwhelmingly in (1) and (2). The admissions tournament is difficult to win and the criteria for winning are well-understood.** The acculturation process is also very important—students absorb the shared knowledge, mannerisms, and thinking styles of the people who run the world in various ways, which are key to joining the world-running process yourself. Elite degrees signal very little (3), by contrast—everyone knows you only leave Harvard by choice. As for (4), who knows? And from the perspective of most external institutions, who cares? That’s why the Thiel Fellowship is kind of silly—he’s just substituting one admissions tournament and acculturation process (undergraduate education vs. business startup) for another. It doesn’t prove anything.
A typical bachelor’s degree (e.g. in business) from a typical regional public university, by contrast, signals almost no (1) or (2)—it’s easy to get in and acculturation is light. Their value is in (3). Earning 120 college credits isn’t a trivial task. You have to learn how to navigate the rules of a complex organization, get out of bed in the morning and show up for class (or at least, for exams), and stay focused on achieving a bottom-line goal over a number of years. Not everyone has those qualities, which happen to be highly congruent with the needs of the vast American white collar workforce. That’s why large corporations and government organizations use the bachelor’s degree as a first-order employment screen. They don’t really care what you studied, i.e. (4), which is why they rarely narrow the screen to include some majors and not others. They just care that you studied something.
Finally, some degrees do serve primarily as a signal of (4), knowledge and skills, largely those that are associated with professions in which the knowledge and skill-base is externally defined, e.g. nursing. Law school is kind of a special case in that the best schools are mostly in the business of running an admissions tournament followed by an academic tournament. Class rank is everything whereas they don’t even teach you enough knowledge to pass the bar, which usually requires a separate class at additional expense. Another example: Non-vocational associate’s degrees aren’t worth much by themselves in the job market because they only signal 50 percent of the (3) signaled by a garden-variety B.A., of which there are many.
The problem is that many of these distinctions aren’t obvious to prospective students. Credentials that signal completely different things are given identical names and the overall pricing structure in the market is very strange. A naive teenager might plausibly assume that a B.A. in history from one accredited university bears some similarity to a B.A. in history from another accredited university, when in fact they signal wholly different things. (1), (2), (3), and (4) do not carry equal value. A lot of institutions are out there making money selling degrees that purport to signal certain valuable qualities but really don’t.
Sometimes colleges are honest about what they’re selling but not about the quality of what they’re selling—"instead of the promised rotations at UCLA Medical Center, her clinical training consisted of helping pass out pills at a nursing home,” that kind of thing. Less (4) than you allege. This is what a lot of for-profit colleges are being accused of and why the U.S. Department of Education has proposed “gainful employment” regulations. Or David Segal’s Times expose of fourth-tier law schools charging first-tier prices, leaving students saddled with hundreds of thousands of dollars in debt and no good job because they didn’t realize that an academic tournament is only valuable if a legitimate admissions tournament comes first.
Other colleges are essentially confusing categories, like lower-tier private colleges that charge a lot of money to provide a simulacrum of exclusivity and power-structure acculturation—stately buildings, verdant playing fields, and so forth—but there’s no there underneath.
All of this is aided and abetted by the fact that pricing in higher education is completely bizarre. Combine the fact that prices are generally disconnected from both cost on the front end and value in the marketplace with heavy internal functional cross-subsidization (teaching subsidizing scholarship, lower division subsidizing upper), large government subsidies, regulatory barriers to entry, and naive consumers operating in a confused, information-starved market, and there are massive opportunities for exploitation.
Many of these things have been true for a long time, but public discontent has grown in lockstep with the overall price of higher education—instead of paying a little more because of market inefficiencies, people these days are paying a lot.
So that’s where the future reckoning—not bubble-popping per se, but major shifts in position—is likely to occur. It’s hard to maintain a pricing structure that depends on irrationality and lack of information forever. You can do it for a while—we have been—but in an open society with increasingly sophisticated information tools the truth tends to come out in the end.
** The genius of elite college admissions tournaments is that they manage to make a tremendous amount of money running them while simultaneously and openly subverting the rules of their own tournaments to make even more money by selling slots to rich people, legacies, etc. I’m always amazed that this works.