The University Has No Clothes

The notion that a college degree is essentially worthless has become one of the years most fashionable ideas,
with two prominent venture capitalists (Cornell 89 and Stanford 89, by the way) leading the charge.
By Daniel B. Smith Published May 1, 2011
(Photo: Andrew Eccles. Hair by Alejandra/Artists by Timothy Priano for Redken, Benjamin Thigpen/Artists by
Timothy Priano. Grooming by Dora Salgado using M.A.C. Cosmetics for Agent Oliver. Makeup by Sylwia
Rakowska/Ford Artists using Temptu)
Pity the American parent! Already beleaguered by depleted 401(k)s and gutted real-estate values, Ponzi
schemes and toxic paper, burst bubbles and bear markets, he is now being asked to contend with a new
specter: that college, the perennial hope for the next generation, may not be worth the price of the
sheepskin on which it prints its degrees.
As long as there have been colleges, theres been an individualist, anti-college strain in American
culturean affinity for the bootstrap. But it is hard to think of a time when skepticism of the value of
higher education has been more prominent than it is right now. Over the past several months, the same
sharp and distressing arguments have been popping up in the Times, cable news, the blogosphere, even The
Chronicle of Higher Education. The cost of college, as these arguments typically go, has grown far too high,
the return far too uncertain, the education far too lax. The specter, it seems, has materialized.
Its no surprise, given how the Great Recession has corroded public faith in other once-unassailable
American institutions, that college should come in for a drubbing. But inevitability is just another word for
opportunity, and the two most vocal critics are easy to identify and strikingly similar in entrepreneurial
self-image. In the past year or so, James Altucher, a New Yorkbased venture capitalist and finance writer,
has emerged through frequent media appearances as something of a poster boy, and his column 8
Alternatives to College something of an essential text, for the anti-college crusade. The father of two young
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girls, Altucher has a very personal perspective on college: He doesnt think he should pay for it. What am I
going to do? he asked last March on Tech Ticker, a popular investment show on Yahoo. When [my
daughters are] 18 years old, just hand them $200,000 to go off and have a fun time for four years? Why
would I want to do that? To Altucher, higher education is nothing less than an institutionalized
scamcollege graduates hire only college graduates, creating a closed system that permits schools to
charge exorbitant prices and forces students to take on crippling debt. The cost of college in the past 30
years has gone up tenfold. Health care has only gone up sixfold, and inflation has only gone up threefold.
Not only is it a scam, but the college presidents know it. Thats why they keep raising tuition.
Like Altucher, Peter Thiel is a venture capitalist with strong misgivings about college. Unlike Altucher, hes
a billionaire and Silicon Valley royalty. In 1998, Thiel co-founded PayPal, and six years later, he made the
first angel investment in Facebook. (In The Social Network, he is the imposing figure who conspires to oust
Eduardo Saverin from the company.) A passionate libertarianhe was a generous supporter of Ron Paul in
2008 and is the main funder of the fringe Seasteading Institute, which aims to establish experimental
political communities on offshore platformsThiel is deeply skeptical of top-down R&D and anything that
smells like groupthink. At PayPal, he hustled $100 million in venture capital just ahead of the dot-com
crash, which he anticipated, and he made another well-timed bet for his Clarium Capital Management
hedge fund against the housing market in 2007. In higher education, he believes he has identified a third
bubble, with all the hallmarks of a classic speculative frenzyhyperinflated prices, investments by ignorant
consumers funded largely by debt, and widespread faith in increasing returns.
When I asked Altucher what his aim was in railing against college, he replied that he wanted to reduce
demand so costs go down: Persuade enough kids not to enroll and colleges will be forced to change their
ways. When I spoke to Thiel from his home in San Francisco in late February, he offered much the same
justification for his major salvo in the fight against collegea philanthropic initiative called 20 Under 20.
The program, also known as the Thiel Fellowship, will award twenty students 19 years old and younger
$100,000 each and the mentorship of some of the most prominent entrepreneurs in Silicon Valley. The
catch? The winners have to stay out of college for two years. They are to be announced this month.
Their advocacy has made Altucher and Thiel no few enemies. Jacob Weisberg, of Slate, has called the Thiel
Fellowship a nasty and narcissistic idea that will retard the participants intellectual development and
funnel whatever altruistic energies they have into getting rich, like Thiel. Altucher has received voluminous
hate mail as the result of his media appearances and blog posts, including one from a fan who threatened to
murder him and then eat his remains.
But the skepticism is spreading, even among foot soldiers on the academic front lines. In March, Professor
X, an anonymous English instructor at two middling northeastern colleges, published In the Basement of
the Ivory Tower, an expansion of an Atlantic essay arguing that college has been dangerously oversold and
that it borders on immoral to ask Americas youth to incur heavy debt for an education for which millions
are simply ill-equipped. Professor Xs book came out on the heels of a Harvard Graduate School of
Education report that made much the same point. The old policy cri de coeur college for all, the report
argues, has proved inadequate; rather than shunting everyone into four-year colleges, we should place
greater emphasis on vocational programs, internships, and workplace learning. Then, last month, a
front-page article in the Times delivered striking news: Student-loan debt in the U.S. is approaching the
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trillion-dollar mark, outpacing credit-card debt for the first time in
history. With all that debt, more and more are asking, what are we
buying?
James Altucher is a self-made man. A onetime New Jersey
high-school chess champion, he was raised in a middle-class home
and taught himself how to invest by preparing for the role as if it
were a do-or-die match, obsessively studying the ways of the
established masters. (He claims he read every letter Warren Buffett
wrote to shareholders and investors from 1957 on.) Yet unlike many
of the figures associated with the view that college isnt needed for
successGates, Jobs, ZuckerbergAltucher didnt find his fortune
young, and he didnt drop out of college to pursue it. He holds a
bachelors degree in computer science from Cornell, and he did two
years of graduate work in the subject at Carnegie Mellon.
Not surprisingly, Altuchers detractors often cite his credentials as
evidence that he would like to deprive others of a privilege from
which hes benefited. To this, Altucher responds that his college
experience is exactly what gives him the knowledge to criticize the
institution. People come back to me, he says over lunch at a
crowded restaurant in Union Square, very smart, intelligent
people, and say, Look, college teaches you how to think, college
teaches you how to network, college teaches you how to write.
Personally, I didnt learn how to do any of those things in college.
What Altucher learned to do in college, he says, is what all young
menwith almost no exceptionslearn to do: drink and talk to
women.
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(Photo: Bettmann/Corbis (Rousseau, Thoreau);
Corbis (Hubbard, Dewey); AP Photo (Bloom)
Altucher has a very personal perspective on college: He doesnt think he
should pay for it.
That training didnt come cheap. By the time Altucher enrolled, in 1986, private-college tuition was already
so high that he had to borrow heavily to attend. Except for the first semester, I paid for my whole
education, he says. I borrowed every dime. He did everything he could to mitigate the expense. He took
six classes a semester, stayed on for summer sessions, worked 40 hours a week at the computer lab. In the
end, he managed to graduate a year early and still wound up about $40,000 in the hole.
Altuchers views on higher education arent always consistent. College is like the best thing in the world, I
was surprised to hear him say when I first called him. Its idyllic. Indeed, he sometimes suggests that
college is so idyllic its wrong to populate it with the young. Instead, he urges students to take time off and
take advantage of their youthto start a business, travel around the world, work for a charity. What
everyone asks then is, How are they going to pay for that? Well, its one fiftieth of the price of college to do
any of those things.
This isnt just a matter of harnessing peoples resources more productively, Altucher insists. Its a matter of
harnessing the countrys resources more productively. Lets take a step back, Altucher says. Whats the
other American religion? Owning a home. For years, the government encouraged home ownership for all
citizens. So we got more and more loans that were considered subprime, and look what that did. The idea,
the religion of home ownership for all, turned into a national nightmare, a national apocalypse instead of a
religion. The same things going to happen here.
The economic recession that began at the end of 2007 has had numerous, cascading effects: a decline in
property values, retirement savings, birthrates, geographical mobility; an increase in the national deficit,
political rancor, mental-health complaints. One effect the recession has conspicuously not had, however
despite what economists say may be the worst job market for graduates since the Great Depressionis on
the number of American families who send children off to college each September. Fifty years ago, 48
percent of recent high-school graduates enrolled in a college or university. In 2009, that number was more
than 70 percenta historic high.
What is perhaps even more striking than these figures is that in the opinion of the vast majority of
Americans, theyre too low. A 1999 survey sponsored by the Educational Testing Service found that 87
percent of Americans felt the lack of a college education to be a disadvantage in life. Ninety percent of
high-school seniors expect they will go on to college, with seven out of ten of those believing theyll
progress from there into a professional career. Education has been central to the American Dream since
the time of the nations founding, Drew Gilpin Faust, the president of Harvard, wrote in 2009. But in the
decades since World War II, it has been collegenot just elementary or high school, as beforethat has
become fundamental to cherished values of opportunity.
Social scientists and historians long ago identified this transformation in American educational
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expectations as the college for all movement, and public leaders and private philanthropists
enthusiastically rallied support for it. But the data gathered in recent years on the value of college has been
mixed at best, blunting the moral edge of college for all and turning some higher-ed advocates into
skeptics like Altucher and Thiel.
This new criticism of higher education comes from three main sources. The first is the reality that, while all
parents want their kids to complete college, little more than half of those millions who haul their laptops to
campus each fall actually end up with a bachelors degree. The United States now has the highest college-
dropout rate in the industrialized world, and in terms of 25-to-34-year-olds with college degrees, it has
fallen from first to twelfth.
The second source is the quality of the education available on campus. Nearly half of all students
demonstrate exceedingly small or empirically nonexistent gains in the skills measured by the Collegiate
Learning Assessment, even after two years of full-time schooling, according to a study begun in 2005 by
sociologists Richard Arum and Josipa Roksa. (Many education reformers have focused their attention to
gains from investments on the other end of the spectrum, in pre-K schooling.) In 1961, the average
undergraduate spent 25 hours a week hitting the books; by 2003, economists Mindy Marks and Philip
Babcock recently found, that average had plummeted to thirteen hours. In a typical semester, one third of
the students Arum and Roksa followed for their recent book, Academically Adrift, did not take any
courses that required more than forty pages of reading per week and half did not take a single course that
required more than twenty pages of writing.
If college is neither a luxury good nor an investment, what is it?
But it is the data on the economics of college that is most disturbing. Its bad enough that our colleges are
underperforming, one cant help thinkingbut do they have to charge so damned much? In the past 30
years, private-college tuition and fees have increased, in constant 2010 dollars, from $9,500 a year to more
than $27,000. Public-college tuition has increased from $2,100 to $7,600. Fifteen years ago, the average
student debt at graduation was around $12,700; in 2009, it was $24,000. Over the past quarter-century,
the total cost of higher education has grown by 440 percent. Like many situations too good to be true,
Louis Lataif, the dean emeritus of Boston Universitys School of Management, wrote in February for Forbes,
like the dot-com boom, the Enron bubble, the housing boom or the health-care-cost explosionthe ever--
increasing cost of university education is not sustainable.
This analysis, of course, takes a purely utilitarian view of collegehigher education, as its many defenders
hasten to point out, has a significance for students that defies the cost-benefit ratio. Last year, in response
to a Times article titled Plan B: Skip College, The New Yorkers Rebecca Mead published a rousing
defense of colleges ability to, among other things, expose individuals to the signal accomplishments of
humankind. In an essay published in March in The New York Review of Books, critic and professor Peter
Brooks dismissed the swelling discontent with college as cranky and narrow-minded. The university is, he
wrote, one of the best things weve got, and at timesas when reading these booksit almost seems to me
better than what we deserve.
What kind of an economic good is college? Peter Thiel likes to ask. One answer is that college is a luxury
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gooda high-end commodity whose appeal, like a designer handbag, grows in direct proportion with the
size of the sticker price. This is the answer given by such recent polemics as Higher Education?: How
Colleges Are Wasting Our Money and Failing Our KidsAnd What We Can Do About It, by the Queens
College sociologist Andrew Hacker and the Times science writer Claudia Dreifus. Higher Education?
contends that American colleges have transformed from rigorous scholarly communities into corporate-
minded youth resorts, where some presidents command salaries of more than $1 million and competition
centers on outdoing one another in acquiring high-end amenities (duplex-apartment dormitories, $70
million gyms).
Another possibility is that college is an investmentan expenditure on which one can expect high future
returns. This answer is one to which many mainstream economists subscribe. When I spoke to Stephen
Rose, a research professor at Georgetowns Center on Education and the Workforce and the author of
Rebound, an optimistic forecast of the postrecession economy, he pointed again and again to what he calls
the totemic number: 74 percent. That is the financial benefitthe so-called B.A. wage premiumthat
economists calculate college graduates can now expect to reap relative to their peers with high-school
diplomas. It is a number that has nearly doubled over the past 30 years.
Still another possibility is that the primary role of college today is to serve a signaling functionlike an
elegant business suit, an impressive B.A. advertises talent, pedigree, and ambition employers can use as a
hiring shorthand. Thiel, for instance, received both an undergraduate and a law degree from Stanford,
credentials that he was able to parlay into a clerkship with a federal judge, an associate position at a
white-shoe Manhattan firm, and a job trading derivatives at Credit Suisse before he returned West to join
the Internet rush.
But of course, Silicon Valley is a mecca of countersignalingwitness the super-status Zuckerbergian
hoodieand its no surprise to discover that in the land of the billionaire dropout, an Internet entrepreneur
like Thiel sees evidence that higher education inhibits innovation. All he has to do is look around to see a
new model universitythe college of innovation and pluck.
Thiel does not dismiss those who say that higher education is a luxury good or that for some it might be a
worthy investment, but he finds neither account adequate to explain the college bubble. Its undoubtedly
true, he said, that its a lot more fun to go to college than to work. And yet the fact that college now costs
so much, and requires so much debt to complete, probably leads people to be a lot more stressed out than
they otherwise would be, so its probably a lot less fun than when it cost less. His hunch is borne out by a
comprehensive 2010 survey of freshmen that found emotional health to be at a record lowin large part
because of financial worries.
Not only is college a scam, but the presidents know it. Thats why they
keep raising tuition. James Altucher
College debt means getting stuck on a particular career track for the next
twenty years.Peter Thiel
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As for college being a good investment, Thiel believes the 74 percent wage-premium figure to be as inflated
as tuition prices. A Clarium report Thiel commissioned in 2009 analyzed government data to argue that,
while the return on a college diploma indeed increased markedly between 1978 and 2000, thats only
because the return on a high-school diploma decreased markedly during that same period. Relative to the
past, the report stated, students who go to college do better than their peers who do not, but this is simply
a mathematical result of their peers doing worse than in the 1970s. At the same time, more college debt
means it takes students much longer to pay back their loansa consideration Thiel thinks economists are
wrong to omit from their calculations. Its not just a question of if you get [a degree], you make more
money, he says. Its also a question of how many options youre precluding for the future. Just as during
the real-estate boom people bought more house than they could afford, trapping themselves in
burdensome decades-long mortgages, lots of college debt means that youre maybe stuck on a particular
career track for the next twenty years.
But if college is neither a luxury good nor an investment, what is it? For Thiel, the commodity college most
closely resembles is the humble insurance policy. Americans have become terrified, he says, of what will
happen to their children if they dont send them to college. The recession, widening income inequality,
growing job insecurity, the uncertain future of the welfare state, the increasing costs of health careall
have deepened the anxieties that made college such an attractive option for a rising middle class in the first
place. I think thats the way probably a lot of parents think about it. Its a way for their kids to be safe, to be
protected from the chaos. Youre paying for college because its an insurance policy against falling out of
the middle class. The larger question this raises, he says, is, Why are we spending ten times as much for
insurance as we were 30 years ago? And does that tell us something has gone really badly wrong with our
country?
At the core of the Thiel Fellowship application is a pair of open-ended, Miss Americalike prompts: Tell
us one thing about the world that you strongly believe is true but that most people believe is not true and
How do you want to change the world? Within weeks of the applications going out, responses began to
appear onlineon Facebook, on student blogs, and on YouTube in the form of PowerPoint and HD-video
presentations.
Among the first responses I came across, in February, was on the website of Dale Stephens, a freshman at
Hendrix College, in Central Arkansas, which routinely shows up on rankings of the best liberal-arts schools
in America. Stephenss answer to the second question was to propose a new airline that would utilize a
single aircraft family, secondary airports, and a single-class seating system to provide inexpensive
transatlantic flights. This was no mere daydream: He had already forged contacts with Boeing, Southwest,
and several major airport authorities, and hed devised a business plan that, with adequate seed money, he
was convinced could be brought to profitable fruition.
After I read his proposal, I tried to schedule an interview with Stephens. This proved harder than expected.
He told me to check his online calendar for an opening; he was booked solid for weeks. When I finally did
get through, a couple of days later, it became clear why he was so busy. Stephenss 19-year-old life is
crammed full with intellectual and creative ventures. He is writing a book. He participates in workshops,
seminars, conferences. A month before we spoke, he put his airline idea on ice in order to launch an
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organization that applies the methods of unschoolingthe self-directed brand of homeschooling with
which he was raisedto the realm of higher education. UnCollege, as Stephens calls it, has already
garnered coverage from The Chronicle of Higher Education, the Huffington Post, and ABC News. Then, of
course, there was his classworkthough hed already resolved to jettison that distraction. Whether he was
awarded a Thiel Fellowship or not, he said, he was going to drop out. He did, at the beginning of last
month.
I spoke to a half-dozen applicants, and nearly all offered the same lament: College is impractical. The
liberal arts are hazy, its lessons inapplicable to the real world. The best way to learn is through purpose-
driven education, Max Marmer, a Stanford student who also dropped out recently in favor of
entrepreneurship, told me. Taking classes in itself is worthless. Listening to these kidsthese
inordinately gifted, monumentally confident kidswas at once inspiring, intimidating, and a reminder of
just how limited in reach the efforts of the anti-college leaders have been. Inevitably, perhaps, both
Altuchers rhetoric and Thiels philanthropy have appealed most to that segment of the college population
that is bound least by the college system. With their sophistication, self-motivation, and autodidacticism,
these students dont truly need college. Lock the gates of the campus behind them and you can be
reasonably certain theyll do just finemaybe better.
Attending to these outliers has been a PR boon for the Thiel Fellowship, which is intended, Thiel told me,
to reset the values all the way down the systema program of trickle-down entrepreneurship aimed to
launch us out of our great stagnation. As Thiel and Altucher surely understand well, now is precisely the
moment, with all its uncertainty and anxiety and instability, when systems as stalwart as college seem most
in need of reconfiguration. But it is also the timewith all that uncertainty and anxiety and
instabilitywhen the millions reliant on a system as stalwart as college are least eager to do any real
reconfiguring. The vast majority of undergraduates are in a peculiar and as yet unresolved bind. On the one
hand, a college education will likely saddle them with crippling debt and consign them to four
underwhelming years in classrooms with fluorescent lighting and drop-tile ceilings. On the other hand,
opting out will likely consign them to a lifetime of unsatisfying, low-wage employment. Whats an average
kid to do?
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