Innovation in Education

Monday, May 30, 2011

A successful businessman is offering students fellowships -- to drop out of school.

Peter Thiel, a co-founder of PayPal, will pay each of the 24 winners of his Thiel Fellowship $100,000 not to attend college for two years and to develop business ideas instead.


The fellowship seeks to help winners develop their ideas more quickly than they would at a traditional university. Its broader aim goes beyond helping the 24 winners, by raising big questions about the state of higher education.

Mr. Thiel ignited controversy when he told TechCrunch in April that he sees higher education as the next bubble, comparable to previously overvalued markets in technology and housing.

Both cost and demand for a college education have grown significantly in the years since Mr. Thiel was a student. He sees that rise as irrational.

Students today are taking on more debt, and recently tightened bankruptcy laws make it more difficult to shake that debt, he argues, and those factors make higher education a risky investment. "If you get this wrong, it's actually a mistake that's hard to undo for the rest of your life," he said.
Thiel makes excellent points, but none so perspicacious as the following:
Mr. Thiel studied philosophy at Stanford in the 1980s and later completed law school there, but he now wishes he had given more thought to the educational decisions he made and their implications.

"Instead, it was just this default activity," he said. [bold added]
I have seen the notion that there is an "education bubble" bandied about quite a bit lately, and have written about several aspects of it myself a few times already, but I have seen few with such a good grasp of the problem on as many levels at once as Thiel. I am not sure how much Thiel appreciates the role of government in making non-stop schooling a default activity for young adults; nevertheless it is a profound observation that it has become a default, and that this is not a good thing.

While dropping out of college or grad school clearly isn't the right thing for everyone to do, I am glad to see Thiel making it easier for the most talented students to stop for a moment and think about whether attending school (at present or, perhaps, at all) truly is the best way for them to get ahead.

-- CAV

--- In Other News ---

Mrs. Van Horn and I watched Agora yesterday. What a movie!
As Christianity gains steam in Roman Egypt toward the end of the fourth century A.D., a young slave (Max Minghella) weighs his desire for freedom against his growing love for his mistress (Rachel Weisz), an atheist as well as a professor of philosophy. Alejandro Amenábar (The Others) directs this epic drama based on the life of Hypatia of Alexandria, a noted Greek scholar and mathematician. Rupert Evans co-stars. [format edit, link added]
Although it is accurate, the above description of the film from Netflix still does a comical job of failing to capture how well Amenábar makes intellectual inquiry come alive, develops his characters, and uses symbolism. The final scenes brought us to tears.

From a somewhat rambling essay on Marxism comes an amusing partial refutation of the labor theory of value: "Clearly Marx never taught a child to cook. You start with raw materials worth something, you spend hours on cooking (and putting out small fires), and the result is, more often than not, a mess that has to be thrown away."

After reading this long article about the poor business model and complete lack of innovation at the tottering U.S. Postal Service, I'd love to be in a position to tell them, "Your check is in the mail," as it were. This government-imposed monopoly needs to go.


Sergio said...

Mr. Thiel touches on what many in the non-mainstream media finance world have been discussing for some time now.

Encouragingly, they (in my opinion) accurately identify state policy into education and the myriad "unintended" consequences that have resulted as driving the student debt bubble today.

I believe it was nearly a year ago that total college/university student debt in America surpassed the total credit card debt in America. That, combined with destructive "social engineering", "progressive" policies and a default on student debt of something in the neighbourhood of 50-70% - and the picture starts to take shape.

For a concise, albeit flashy and particularly alarmist, take on this matter, check out

Alternatively, check out the fine folks over at to source some of the statistics that the video, or others, may allude to.


Jim said...

Re: increase in demand for education, it is mostly demographic caused by the Echo Boom; the largest high school graduating class in US history occurred in 2009.

Re: the bubble, while there will be a drop in demand after the second crest of the Echo Boom generation, the popping of the bubble will be financial as the federal government has become the primary means of paying for college and its ability to borrow is becoming constrained.

The conversion of the Pell grant program to an entitlement has recently been met will efforts to lower benefits. Meanwhile, federal student loans have been experiencing higher default rates after the federal government took over full liability for the program, which is now totally dependent upon government borrowing to finance new loans.

I expect that upcoming cuts in federal education dollars will fall mostly on postsecondary financial support; this after the Pelosi congresses drove private lenders out of the education market. Not only will borrower costs of federal loans increase to meet their true costs, but these increases will be excessive so as to subsidize other education spending (as was intended with Pell grants). Also, I expect a return to lower income qualification standards that will block access for some of the middle class to federal loans as a way to limit demand for federal borrowing.

Further, the cost to schools for participating in federal financing will increase as the feds will be imposing price controls to restrain their costs. Reporting requirements for tuition increases are already in place; I expect them to be followed by a Department of Education veto over price changes.

Basically, the feds hold all the financial cards, while the feds are broke. To survive the bubble, the risk management question that college presidents need to deal with is: how can their institution run without federal student aid money?

Gus Van Horn said...


Thanks for the links. Will have to look at them later, but I'm posting the comment now, as others might be interested or wish to comment on them.


While demography does account for some of the increase in demand for education, I am not sure I agree that it is the primary cause.

Regarding college education, I suspect that much of it would be unnecessary if high schools fulfilled their roles properly. Also, with so much easy (in the short term) money available to students from the government, any cost-benefit analysis will be skewed by (1) that availability and (2) the realization that many others will avail themselves of the money and the credentials. Thus, many will go to college because everyone else is.

Regarding graduate school, I am on much more solid ground: There has been overproduction of PhDs for so long in academia that anyone contemplating graduate school today would best be served by considering alternatives -- both to grad school and to the traditional academic career. (See this earlier post for more on that.)


Anonymous said...

One aspect of the federal subsidy that most people miss is that the third party payer system, like that in the medical industry, is the primary factor pushing the cost of education up. It essentially increases demand by simulating a lower cash price up front while downplaying the actual cost to the student in the long run. The universities use this perverse incentive to charge what the "market" will bear and raise tuition accordingly.

30 years ago, I won a science competition and received a $1000.00 scholarship to a state university as a prize. That paid tuition, books and lab fees for two semesters with about $200.00 left over at the end of the year.

My youngest brother was attending that same institution 2 years ago and was paying out $3800.00 per semester for tuition alone.

Another thing that a lot of folks missed was that the provision in Obama-care that mandated "children" be kept on parents' insurance policies until 26 years of age also changed the rating system whereby grants are awarded. The net effect is that middle-class americans will be subsidizing the education of those who get it for free.

Federal subsidies of higher education have resulted in a massive wealth transfer from the middle class to the institutions of higher learning. I wish I could say that I thought it was an unintended consequence.

Anonymous said...

I saw the Agora movie trailer on line and was sorry that it didn't come to any of the local theatres. Your review prompts me to get a copy.

c. andrew

Gus Van Horn said...


Thanks for the succinct description of how the federal subsidies are distorting both demand AND price in this market.

Also, I was completely unaware of that ObamaCare provision. It makes sense that it would have the effect you mentioned. Thanks for bringing that up.


Gus Van Horn said...


It's available on Netflix. Get it before the Post Office collapses! :-)