Student Loans and the Education Bubble

I was early for a meeting on friday afternoon and found myself sitting in a chat between a University President and members of the faculty. One of the faculty members asked the President about the "education bubble." The President gave his thoughts on the topic and then unexpectedly turned to me and asked what I thought. 

I am a product of student loans. I got an engineering degree at MIT and a MBA at Wharton and paid for both of those degrees with a mix of family support, tuition credits for working while in school, and the maximum amount student loans I could take out. I spent much of my 20s paying those loans back. I remember when I made my last payment. It was a moment of great pride. 

I have made a tremendous return on my two degrees. Those student loans were an investment in me and they paid off big time. For the right student and the right institutions, there is no better investment that society can make than to pay for a high quality college and graduate education. Not only have I paid back the loans, but the Gotham Gal and I have made and continue to make generous gifts to a host of educational institutions. We will pay back the investments made in us many times over.

When it came time for our children to go to school, we have paid for the highest quality education we could find for them. We are fortunate that we did not have to take out loans to pay for those tuition bills. But if that were not the case, I am confident we would have borrowed the money to help them attend those institutions. So we are big believers in the value of a higher education and we have invested in it for ourselves and our children.

I told the University President and the faculty members all that. But I also told them that I am deeply concerned that about the cost of a high quality education and the fact that it is getting out of reach for many. And I told them that I am not sure the return on the investment is as high as it once was for many degrees. And finally, I told them that too many students are walking out of college with a student loan burden that is crushing and that they can't and won't pay back. 

So how you reconcile these two opposing views and what can we do about it?

Technology can help. But it is a tool not a panacea. Given the choice, most of us are still going to opt to send our children to MIT instead of the University of Phoenix. MIT and the other leading higher education institutions will increasingly use technology to improve the education they deliver and do so more efficiently. This may help alleviate the ever rising costs.

But we also need to get more creative about the financing of higher education. We should measure the return on investment students are getting from the institutions they attend and the degrees they obtain and tie the amount of loans they can get to the returns they are likely to achieve. Students that attend institutions that can deliver higher returns should be able to take out larger loans.

Repayment terms need to change as well. Loan repayments should be capped at a percentage of current income. I know a woman who has been out of graduate school for more than a decade who dedicates one of her two paychecks a month to paying back her student loans. She is spending half of her take home income on her student loans. That is nuts.

Bubbles are driven by easy money that drives irrational behavior. Our student loan policies have been doing some of that. We can and should change our policies to force more rational decisions in the purchase of higher education in this country. 

But we cannot forget the power of a high quality education to put our children on the best possible path in their lives. I am an example of what such an education can do for someone. And I know that there are many others out there just like me. We need to figure out how to reform the system in ways that don't cut that path off for students like I was thirty years ago.

#hacking education

Comments (Archived):

  1. takingpitches

    So agree about the bubble. One place it’s stark is for law school tuition. I had lunch with the dean of Harvard Law a couple of years back. I asked about the fact that law school tuition had doubled in the prior decade. She said the model was dependent on 90+ percent going to big law firm jobs so as to support the debt load and the first year associate salary continuing to go up to support the tuition increases. Someone else pointed out that big law firms have cut their hiring and salaries will not go up.The model is going to collapse.

      1. fredwilson

        great post and that Barrons piece is scary

        1. William Mougayar

          Its ending says it all, and the point about parents revolting is a good one. A (not wealthy) friend of mine was recently lamenting he was going to pay $60K per year to send his kid to a top London school because he was accepted there. His words are still resonating with me “I’m going to do it for him, but I don’t know why.””Student debt also helps sustain many school hierarchies that are virtually bereft of cost controls—the high-salaried tenured professorates, million-dollar-a-year presidents and provosts, huge administrative bureaucracies, and lavish physical plants.The debt game will continue until students and their families revolt or run out of additional borrowing capacity. Don’t expect the educational establishment to rein in its spending. Things have been too cushy for too long.”

        2. takingpitches

          Thanks!Sent from my iPad

  2. Brad

    Get government out of the school loan business. Sallie Mae funds over 90% of school loans now. Flooding the market with loans has driven the cost of education up over the last few decades. Let the market return to normal and you will see prices drop.There was a NY Times article a few weeks ago about a 29-year-old single mother who is $55,000 in debt and 16 hours *short* of a bachelor’s degree from Everest College, which is a profit-making college similar to University of Phoenix. That’s completely absurd and we shouldn’t be allowing people to go into that much debt just because it’s education. If you couldn’t get the loan for a car, you shouldn’t get it for college.

    1. fredwilson

      i totally agree Brad

    2. Anne Libby

      Veterans are being targeted by these for-profit colleges, too. Shameful.

  3. Jan Schultink

    Put bluntly on purpose:For general management positions, premium higher education is an expensive entry exam. If you managed to get in, you must be a smart guy, what you learned after that matters less in the eyes of many recruiters.While it is hard to cut the cost of training a doctor, entry exams should be made cheaper somehow….

  4. narikannan

    Affordable good, public college education for the larger masses (not just those that are smart enough to go to the top 10) is *ABSOLUTELY* one of the reasons this country was able to prosper over the decades. Making that college education more and more expensive and making loans for getting them unsustainable is pure economic suicide. Especially when lots of other countries subsidize college education and technology makes it easier and easier for people across the Globe fill in the gaps in their own education with free top-notch courses from MIT and Berkeley from places like Coursera. Technology also allows increasingly very highly skilled jobs to be done from across the globe! This is just nuts!

    1. fredwilson

      agreed. do you have any suggestions?

      1. narikannan

        They need to address it two ways – Costs and The Financing of it – Public college education is atrociously expensive because of two main reasons – Wastage of tenured resources and extraordinary emphasis on sports, quality of life in dorms. When was the last time a non-top 10 university contributed anything worthwhile in research, at least in the Computer Sciences? Graphics was done by Pixar and Industrial light and magic and social media companies have contributed all backend technologies for the last ten years – fb, yahoo, Google, Twitter, etc. Overpaid, underworked tenured professors. And for God’s sake, you don’t need to make dorms looks like hotel suites with food to match. You would think that colleges’ main function is to host sports! This is like Rome and Italy before they fell. On the financing side, college loans need to be treated not like a loan to build your house or your commecial real estate. It’s an investment by the Government. You don’t need to give it out for free. When cost of money is 0%, college loans cost 8%? Really? Even with Government guarantees? This is wall street run amuck and this was the payback they all got for spending money on elections. More than anythingelse it’s the courage to really face the truth about what’s happening to higher education in this country. Lots of student loans taken with people signing up for courses that high schools dont prepare them for, them dropping out and taking useless majors and finding out the hard way that you don’t have marketable skills. This ain’t the 50s when you get a history major and get a job at IBM!

  5. Chris O'Donnell

    It took me 10 years to pay off my student loans, and I got my employer to pick up the most of the tab for my MBA. However, I also have a technical degree. Going way into debt to get a CS or EE degree that promises a $70K a year job on graduation and nice income growth is a different calculation that taking on a lot of debt to get a sociology or history degree. I’m not down on the liberal arts, in fact my son is a freshman studying history. But the reality for people whose interests lie down those roads is that they are not going to have the income growth to support paying off a huge debt. It’ll be an anchor on their life. The world needs historians and sociologists, so we do need to find a way to make college affordable for everybody. In our case, my son is living at home and attending school in town. This way I should be able to get him though 4 years without either one of us taking on any debt.

    1. fredwilson

      yes, yes, yes

      1. John

        I agree completely. The challenge is that many who start college think they want the high paying job on wall street. Once they realize that job sucks and they’d rather be a history teacher, it’s too late because they’re already head over heels in debt.

        1. fredwilson

          so true. that’s what happened to the woman i know who is spending one of her two paychecks paying for a degree she doesn’t use. we need to figure out how to fix that problem

          1. k77ws

            Shouldn’t “she” not “we” figure out how to fix that problem?

  6. christopolis

    What the government stopped education from doing…”When the founding grant was made to Stanford University in 1885, one of the five founding principles espoused by Leland and Jane Stanford was that the University would never charge tuition. “Get the government OUT of education. Private charity and trusts can more than make up for the difference.Or continue creating indentured servants with 2 years of school in cosmetology.

    1. fredwilson

      but they do charge tuition. what went wrong?

      1. christopolis

        What happened? The government destroyed this positive feedback loop.School charges no tuition but only takes on exceptional students with commitment to provide them with great education, Student completes studies. Did they get a great education that provides real world value? If so then they will make lots of money and donate back to school. Now we have people who are well educated and decentralized funding education. That’s an awesome model. They know if the school deserves it.Replace that with centralized distribution of money coupled with loans to students who have NO education deciding where to invest a few hundred thousand. What is going to have a better outcome?Regarding Stanford….Students are admitted on a need-blind basis, and the university ensures that no admitted student is unable to attend. Once here, students discover that exploration, challenge and curiosity are limited only by their desires.

        1. fredwilson

          MIT also has need blind admission. i was a beneficiary of that policy. but they do charge tuition.

  7. andyswan

    For 90%+….College degree was never a key component of success. It was simply a key signal that you are going to be successful. HUGE difference.Sending everyone to college doesn’t make everyone more successful…it makes college MUCH more expensive and the degree much less valuable.

    1. muratcannoyan

      During college some 25 years ago I thought getting my degree was like getting a work permit. Can’t think like that any more.

      1. Matt A. Myers

        Indeed, it’s so much more now, including hopefully a place to experiment (not talking drugs..) and be exposed to much more than you would have 25 years ago.Higher education should mimic the publicly funded highschool and lower systems – however with more onus and responsibility of the individual to dictate where they are directing those funds – for things such as specialized programs.There are a lot of kinks to be worked out.

    2. Techman

      These days, a HS diploma gets you nowhere. Every employer demands a college degree nowadays, and that is just adding to the problem.

      1. andyswan

        College is the new high school because of these loans. just a signal…has nothing to do with what you learn there.

    3. Dave Pinsen


  8. Richard

    Making interest on students loans tax deductible is a no Brainer.

    1. fredwilson

      i am thinking we want a simpler tax code, one in which we remove the interest deduction for mortgages. so i am not a fan of that idea.

      1. Luke Chamberlin

        I agree. A student loan deduction is a tax on people who don’t go to college.

        1. Richard

          so is every tax deduction, housing etc.

          1. Luke Chamberlin

            My point exactly. I’m with Fred – get rid of tax deductions.

          2. Richard

            I agree, let’s start with homes not education

      2. Dale Allyn

        The tax “code” should not be a “code” or require “decoding”. It should be dead simple, i.e. a tiered flat tax. A dead simple tax code lets everyone fully understand what the government is extracting from its people. This way, every citizen can fully recognize when there is truly a tax increase or a tax cut. Of course this removes a powerful tool used by congress for their smoke and mirrors, deceit and incompetence.The only other system that I find interesting is a national V.A.T. in lieu of income tax. Give low income people exemption credentials, etc. But get revenue for what are now underground economies.The transition period will be painful (stressful to an economy) but with careful planning and full description and disclosure (true transparency) people and companies will adjust.

        1. fredwilson

          i agree. the simson bowles plan was pretty good.

          1. Dale Allyn

            S-B has some strong points, and it probably represents a first potentially executable step, but to me it doesn’t go far enough. There are still some layers which need to be peeled and simplified, plus some protected sectors which need to be resolved. There needs to be a change and we need to start somewhere.This issue should be discussed far more openly and transparently to achieve what really needs to happen. Not Congress’s strong suit.

      3. Richard

        C’mon Fred, you are thinking in the old paradigm. Education is R&D Why is it ok for a c corp to to hve this dedeuction but not a startup of one.

        1. fredwilson

          Probably isn’t good for the C Corp to have it either

      4. John Revay

        “….the Gotham Gal and I have made and continue to make generous gifts to a host of educational institutions.”So I am assuming you would continue to make these gifts w/o the deduction.My college roommate is a big flat tax guy…he also is a trustee of the college we attended, as well as the private school that his 3 children attended.Not sure what the advancement people view’s at those schools would be.

        1. fredwilson

          Yes. The deduction is the icing on the cake. In many cases we can’t use it for anything other than federal taxes

    2. Luke Chamberlin

      I think this has the opposite effect. You might provide relief in the short term but in the long term you’re incentivizing people to take out more debt.

      1. Richard

        I agree, but let’s get back to reality. Tax incentives are everywhere.

        1. matthughes

          That’s the real problem right there.

          1. Richard

            Im in your camp on this one. But wow if there was ever One thing that you would think that that would be tax deductible for the entrepreneur, it would be renting your apartmet, education and healthcare. It is by any measure simply unexplainable give that we live in a tax incentive based society. I stand by what I said, it is a no Brainer.

  9. andyswan

    Government manipulation of student loan prices is how we got into this mess in the first place. I can’t imagine why we’d want government tinkering with it even more.I’ve noticed a pattern… Gov’t do-gooders manipulate markets “for the greater good”….things go well for one generation….then boom reality crashes everything and the new do-gooders add on more and more schemes because the “system is broken.”Medicine. Housing. Education. “if you think it’s expensive now…just wait til the government makes it affordable!!!”

    1. fredwilson

      what would you do about it Andy?

      1. andyswan

        Eliminate any and all Federal Government funding of education, whether directly or indirectly through loan price-fixing/manipulation.

        1. fredwilson

          well that’s a step too far for me given that i am exhibit A of the value of federal funding of education.i am all for eliminating price fixing and manipulation though

          1. andyswan

            Wait your post specifically advocates for more price fixing! “Cap payment….”

          2. fredwilson

            do you think capping the annual payments at some percentage of income is price fixing?

          3. andyswan

            If it is mandated then yes absolutely.

          4. Dan T

            Sounds like the woman in your example made a poorly performing financial investment. I paid my own way thru school via a co-op work program to avoid that issue and paid off my few loans ahead of schedule. The education market should fix itself over time as new options emerge and consumers demand a better roi. I don’t want the govt to try and.protect or help these people that make.choices that cause them a burden. Make your choices and live with them.

          5. LE

            “do you think capping the annual payments at some percentage of income is price fixing?”I think that potentially could lead to a disincentive for people to earn more money actually. You see this with people not wanting to work because they will loose social security payments and I’ve heard from otherwise intelligent people that they don’t want to work overtime because “it will push them into a higher tax bracket”. Yes, the don’t understand that more money is more money even if your marginal tax rate goes up. You also find (as another example) people in divorce support situations not wanting to work more because “I will just have to pay my ex more money”. These are my anecdotes.

          6. Dave Pinsen

            Mark Cuban’s idea was to cap the amount students can borrow to a few thousand dollars. His idea was that, since colleges have continually raised tuition as loan amounts available increased, they would be forced to do the opposite as available loan amounts decreased.

          7. Dave Pinsen

            If the federal government got out of the student loan business, I’d think the market would still provide loans for an 18 year old Fred Wilson — someone who got admitted to MIT, and was committed to studying a STEM field seems like a good bet to be able to pay back his loan. In fact, there are a couple of startups that provide low-interest loans from alumni to students at elite schools (e.g., Social Finance).Now, it’s true that not every student would get funded in a market free of federal subsidies — a liberal arts student at a third tier school would be a bad bet to payoff his loan. But that would be a feature, not a bug, as kids wouldn’t get saddled with tens of thousands of dollars of debt for degrees that don’t increase their earning potential.

          8. k77ws

            Yes, exactly — just because the Government is not there does not mean the private sector can not and will not fill the void. Kinda like thinking that if the Feds would not have bailed out the auto industry then *poof* GM would have disappeared. No — it would have went through a bankruptcy process and continued operating all the while.

      2. Aaron Klein

        I’ll throw a few ideas in.1. Make high school vocational education meaningful again. A lot of kids without college aptitude can get great jobs straight out of high school if we did that.2. Same goes for college. Focus on getting kids through the system faster. A lot of kids should do two year degrees and we push them into universities when that isn’t what they want out of life.3. Use technology and flexible scheduling to drive down the cost of providing the service. Education is one of only three sectors (along with health care and government) where delivery costs are rising like crazy, not falling.4. Measure success by employment success and income growth post-degree. Higher education prefers not to measure success, but when we do, we use vanity metrics like “number of degrees granted.”

        1. muratcannoyan

          Great ideas, and a long time coming frankly.

          1. Aaron Klein

            That’s what you get from being elected to a community college board for eight years. I thought I’d get released on good behavior, but I just got sentenced to a third term.

        2. fredwilson

          i am for all four of those fact, AFSE is an example of number one

          1. Aaron Klein

            I was going to type that but was going too fast. AFSE is one of the best implementations of those ideas ever.I’m meeting in a few weeks with all of our high school superintendents and will be talking about it. Are you going to publish the “blueprints” online at some point so others can follow the model?

          2. fredwilson

            i am not going to publish them but i hope the DOE will

        3. Dale Allyn

          Very well said, Aaron. These are the types of steps which are very practical and easily executable, but the system gets in its own way. Some of the reasons for that are not flattering to those involved.

          1. Aaron Klein

            Well put, sir.

        4. Derek

          These are all great ideas. Another I’d like to see is for internships to be mandatory for all degree paths. Traditionally they have been good training grounds for STEM and business degrees, but they also should be required of psych, history and art majors too.The internships don’t even have to be in the field of study, just an introduction to two or three possible career paths (business, government etc) and how to navigate the world post-college.(I was a music major who had no idea to navigate the world when I got out of school.)

          1. Aaron Klein

            Love that idea.

        5. LE

          “high school vocational education”Back before autos were highly computerized (and you could tinker with a carburetor) votech attracted the “greasers” and people who weren’t interested or able to go the college path.Which was good. Because not everybody is college material (and that’s not a statement as far as capabilities but how college and education in general is setup to have you regurgitate material and take tests). I know of people who went to votech who are quite “well off” today (one started as an electrician right out of high school and now owns a huge electrical contracting business).Learning a skill that can get you an actual job or lead you in a career direction is great. My father (an immigrant) took real estate courses at night, and that is where he learned the skills necessary to buy and sell real estate.

          1. Aaron Klein

            Totally agree. We tend to treat the world’s kids like parts on an assembly line and that ignores the diversity of learning styles, aptitudes and life desires that make us human.

          2. JLM

            .Your father enriched the gene pool of the US and became a taxpayer by his pluck. That is a compliment on a number of different levels and is the embodiment of the American Dream.That is the way it is supposed to work.America creates the environment and its citizens avail themselves of it and sweat out a success.We are the land of opportunity not the land of the free lunch..

          3. andyidsinga

            you can still tinker with autos – just have to learn a little about electronics, fuel injectors and sensors. OBDII hacking FTW :)My neighbor down the street – old guy gear head – knows everything about this stuff – made me realize its just about motivation (vs current tech) 🙂

          4. Techman

            True. If you have an interest in something, you should most certainly capitalize on that and try turn that into a working career.

          5. LE

            Yeah but I have to tell you that there is a big difference dealing with mechanical things (that you diagnose by “hearing” and by visually seeing problems, which I’ve done with machinery, (not cars)) and having to incorporate hidden things as happens when electronics or programming are involved.Once you understand how one type of machine works, you can usually spot and work on another machine because all the principles are the same.So of course with motivation you can, but even with some cars that are highly electronic you also need special devices to plug into their systems. Generally that’s enough “friction” to keep all but the most dedicated out of that game. Also, people have much more to have fun with today and play with, so there is less of a need for that reason alone (like the same reason stamp collecting or building models isn’t afaik anywhere near what it was 30 or 50 years ago.)

        6. matthughes

          Good stuff.

      3. Wavelengths

        I fear that Andy’s solution would spell the demise of those affordable universities around the country.The schools depend on that money. The university president, the faculty, the secretaries, the maintenance crew, and all their families, which may include their kids who they are trying to send to college.Few students have parents who can take on the lion’s share of school costs. And in our present economy, many of those parents may be working at jobs we would formerly expect students to take while they worked their way through college — in the old paradigm.If we take away the student-loan source of funding, I believe we will see the doors close at many valuable and reputable institutions of higher learning around the country. The result being that a good education will become an even more rare commodity, accessible only to the financially elite, and an increasing majority of our populace will become less well educated.

  10. Aaron Klein

    I fear we are headed for a repeat of the housing bubble. Mix government policies to push billions in “cheap money” for low interest student loans, with the explosion of demand driven by the idea that every kid needs four years of college…and you have an explosion in pricing, rising debt levels and a looming default.

    1. Cam MacRae

      7% of GDP. What could possibly go wrong?

      1. Aaron Klein

        LOL. Have we seen this movie before?

        1. Cam MacRae

          Yeah, and the ending still sucks.

      2. k77ws

        Just keep those printing presses humming. LOL

  11. paulcwhite

    Was at a Open House at NYU Tisch yesterday with my son who wants to study film. Heard the following 3 things within 3 minutes: tuition and board is $70K per year; parents like it that our curriculum includes a “solid liberal arts eduction”; “unlike Stern (business school) our students are going to need to figure out how to make a decent living in what is largely a freelance employment market with often large gaps between getting a paycheck on a project basis”…As a parent, how do you reconcile those three things and encourage your kid to pursue your dream, when we all know many recent college grads who have not found their first career paycheck (working at the local diner doesn’t count) after graduating a year or more ago???

    1. fredwilson

      its a tough call Paul. i don’t have any good answers for that.

    2. Chris O'Donnell

      Is NYU public or private? My son is a freshman this year and one thing we learned evaluating colleges last year is that the pricey private liberal arts schools throw a lot of scholarship money around. He had several acceptance letters come with $80K in scholarships attached, which not coincidentally brought the annual cost of those schools down to about what State U costs. He also got invited to interview for a full ride, which he did not get. So the opportunities to cut costs are out there, although I don’t know if a brand name like NYU has to be as aggressive in that area as other schools.Also, and I think this is hard for those of us that had great experiences going away for college, but 4 years of partying in the dorms or a frat house is not really required for a college education. You can save a good chunk of change living at home. That is what we eventually did. When my son didn’t get into his top choice school he decided to just stay home and attend the perfectly good public liberal arts school 10 minutes from home. It’s allowing us to write a check for tuition and assuming we can stay gainfully employed for the next 4 years – we can get him through undergrad debt free.

      1. John Revay

        I believe NYU is private.Nice comment – Chris

    3. JamesHRH

      You don’t send them to university to learn a trade.

    4. Dan T

      The same way I reconcile my 14 year old daughter’s request for an iPhone 5 for her birthday. I’ll buy it if she pays the monthly fee. It’s her responsibility to figure it out and make it happen

    5. LE

      “As a parent, how do you reconcile those three things and encourage your kid to pursue your dream, when we all know many recent college grads who have not found their first career paycheck (working at the local diner doesn’t count) after graduating a year or more ago???”I think you mean “pursue their dream” (freudian “projection” slip there, eh?).Anyway, guess what it’s not about pursuing one’s dream. It’s about earning a living, being able to pay the bills. You can pursue your dream later once you take care of the essentials.When I was a kid I wanted to be a pilot. My dad took me to a local airport for one of those rides they give you prior to signing you up for classes. After the ride he said to me something like “you’ll never be home as a pilot and the pay isn’t great (and that was when it was much better relative to currently by the way) you should do something where you make money and then you can buy your own airplane and fly it when you want”.Guess what? I’d like to be a filmaker also. I love photography and taking movies. But I realize it’s not a practical way to make a living for all but the most talented (Actually I did photography and earned money and could have done that as a career if I wanted to because although my skills weren’t top shelf I could always hustle business.) . Anyway he should pursue something where he can earn a living and then he can do filmaking on the side as a hobby.Of course if you are trying to be his friend and buddy it might be hard for you to do this. This is a new concept as old school parents were parents they weren’t your friends and didn’t give a shit about anything but pointing you in the right direction even if it ended up creating friction when you were younger.My father survived the concentration camps. If you were a creative you stood a greater chance of perishing in the camps. They only needed so many band members to entertain there. If you could do hard manual labor you also survived in many cases. If you had actual skills in the camp (my father managed to fake his way into being an electrician because he had done some of that as a kid and had extensive mechanical skills) you also survived. So the bottom line is concentrate on things that give you actual skills that are needed.

  12. jason wright

    shorter courses

  13. LaMarEstaba

    Income-based repayment already exists. It caps your payment at 15% of whatever you make over 150% of the poverty line. IBR will forgive your debt after 25 years of payments. If you work in the public sector, IBR will forgive your debt after 10 years. It’s something that might make it affordable for me to go to law school. I’ve been really fortunate to have the cost of tuition provided by scholarships, but I know that a lot of my peers are getting into a ton of debt while having abysmal job prospects. I worry about their prospects and they are very concerned about the future. When we graduate in May, they will have to face the job market.

    1. fredwilson

      is IBR available for all student loans?

      1. Richard

        Yes, for federally insured (stafford) loans.

        1. Dad

          but aren’t those generally a small percentage of the total loan package students have because they are limited to very low amounts?

  14. Richard

    If I have my numbers right outstanding current student loans are 150 billion. Dear Warren Buffet et al. what an opportunity to be a hero.

  15. Lance Trebesch

    Excellent discussion. I co-own and run an event ecommerce company based in Bozeman Montana, home of Montana State University, a small engineering focused state university.In hiring MSU interns and graduates — CS, graphic design, product management — my experience has been that they are graduating with enormous loads of debt (note, from a state university) making their career decisions very conservative. For example, many specifically seek out a large companies not because they have a passion for a large company experience, or even the particular industry sector, merely because they are so concerned about their debt. In short, many of the best and brightest don’t seek out a risky startup experience, or even better, start their own company. From my pov, we are building a less innovative society.

    1. fredwilson

      do you think a percent of income based repayment model would help?

      1. Cam MacRae

        That’s how we do it.FY12/13 repayment schedule:Below $49,096 Nil$49,096 – $54,688 4.0%$54,689 – $60,279 4.5%$60,280 – $63,448 5.0%$63,449 – $68,202 5.5%$68,203 – $73,864 6.0%$73,865 – $77,751 6.5%$77,752 – $85,564 7.0%$85,565 – $91,177 7.5%$91,178 and above 8.0%

        1. fredwilson


      2. Richard

        Capping repayment is the tax incentive in sheeps clothing.

      3. Lance Trebesch

        Absolutely. I like that model, and thanks to Caroline for sharing information on it. But I also think higher education could much more to reduce cost. Much has been written and much is being done about truly scaling higher education, which from my pov, means offering more … to more students … for less money. Certainly, online delivery plays a prominent role here.But it’s interesting, I still see the following pattarn both at my alma mater (Univ. of Washington) as well as here in Bozeman. A person makes a huge donation to the university and the majority of the donation goes to a new building in their name. To be clear, I completely applaud their generosity but aren’t we beyond bricks and mortar in education? How about building a statewide digital education infrastructure with that donation?

        1. fredwilson

          I would never want my gifts to go to bricks and mortar. And I would never want my name on anything. I want my gifts to go to faculty and student aid. Teachers and students are the only things that really matter in education. And they matter a ton.

      4. Matt Zagaja

        As a recent graduate with only government loans I have access to income based repayment for my loans. They’ll cap my payments at 15% of disposable income and discharge the balance after 25 years. It’s a nice safety net if things don’t work out but not enough for me to want to risk working on an entrepreneurial venture full time unless I was pulling a decent salary and had benefits. Lack of health insurance is a huge issue, maybe less so for some of my peers but I can’t go without it. Also I know that if I switch to the IBR then my interest will “snowball” during my low income years so it will require much more money to pay back later if I do get a good job. If the government did not capitalize the interest being accumulated while using this program and there was a good healthcare option then I’d seriously consider full time entrepreneurship as a career option.

    2. JamesHRH

      & worse, they cap their personal productivity with those choices.

  16. muratcannoyan

    I caught a Suze Orman show a while back and she suggested that your student loans should not exceed what your expected annual income will be in your first year of employment, or you will never be able to pay them back.

    1. Chris O'Donnell

      As I think about it – that is exactly where I ended up when I graduated in 89. My loans were almost exactly equal to the salary in my first job.

    2. fredwilson

      that’s a great metric

      1. LE

        I can’t wrap my hands around that metric.I mean you could get an engineering degree and your first year income might be bupkas. But over the course of a career in which your salary would increase you would easily be able to pay off your student loans. Of course if you suck at what you do or fall on misfortune you will have problems. Obviously.Let’s say an undergrad education costs $50k per year. Well first you don’t have to live at school you can, in many cases commute to a good local school but people choose not to in order to have “the college experience”. Well maybe you can’t afford to do that, right? To bad. Live at home (if you can and I’m sure many people can). Second, go to a public school in your state which costs much less. This idea that everyone gets to do what rich people can do for their kids is ridiculous. Next people who want everyone to have a wedding at the Waldorf.Anyway, let’s get back to “full load” live away, not eligible for any handouts etc $200k tuition for 4 years. So you are now in debt. But if you’ve done your research and have some clue as to what you can do after school and work hard (not party all the time) and have done your due diligence you stand a fairly good chance of being able to get a job out of college which pays something and you make more money each year and you pay off your loan. Especially because every other young person is asleep at the switch and in la la land. (They are you know in that land because it’s all about fun and getting by with the least work possible).How many years have you been out of college? If you graduated today with today’s debt from MIT and Wharton and started working in VC as you did would it have mattered if you had hundred’s of thousands of debt? It wouldn’t because over time you would have payed off those loans.There is nothing wrong with paying over time for something that you will use over time (like education). The problem is getting an education and not learning something that results in a job that you can use to pay off that loan.

  17. janetvp

    I’m the founder of a start-up whose mission is helpingstudents find and access educational content across the full spectrum (campus-basedand online, for-credit, continuing education, MOOC’s, etc.) and helpingemployers normalize and pay for these ‘credentials’ in a more open structure thanthe traditional degree model. Studentscan predict the economic value of coursework, and employers can pay foreducation in a linear way rather than the current degree/no degree stepfunction.In the context of student loans, it’s important to distinguishbetween education for education’s sake and education acquired with theexpectation of a certain return on investment. Liberal arts education is intrinsically valuable but increasing becominga luxury many cannot afford when delivered by traditional means. Taking out loans to pay for a degree that hasno potential to pay for itself is a path to decades of impoverishment. Our society does students a huge disservicewhen we make general statements about a traditional college degree as the keyto economic advancement. Without clarityabout the purpose behind education, many students acquire expensive degreeswith little economic value(As a side note, emerging technologies like MOOC’s have thepotential to make affordable education available to almost anyone. This is truly exciting.)Economic return on education is inherently about thecredential, which may or may not be indicative of the actual functional valueof the learning. (An MBA instructorat a top-tier program famously told an incoming class that he could put them all on a cruise shipfor two years and it wouldn’t matter when it was time for them to enter the jobmarket.) But technology has thepotential to redefine how learning is rewarded in the marketplace, givingemployers the tools to attach value to educational achievements which are largelyignored today because they don’t fall into the traditional definition of adegree and giving students the ability to predict the value of coursework inthe marketplace before they incur the cost.We are building a company on the assumption that the unit ofconsumption for education is changing from a degree to a course and that thejob market will evolve to recognize and reward a much broader range ofeducational achievement that it does today. Sounds simple, but it’s incredibly transformative when you follow it outto its logical conclusion. And hugeimplications for the whole question of when and how much to borrow to pay foran education.

    1. fredwilson

      Janet – I could not agree more with you

  18. William Mougayar

    What was the President’s answer on the education bubble question?Do you think the cost of higher education can come down to more reasonable levels?I’m curious to learn if there is one university where the tuition level is actually going down instead of going up on a yearly basis. Cost effectiveness seems to elude them. If using technology is a factor in lowering the cost of education, why hasn’t it happen already?Like you, I’m raising more questions than I can find answers.

    1. Derek

      I’d be curious to learn more about this too. When I was at Northwestern in the 80s, the president at the time focused on slowing the growth of tuition costs relative to peers. His thesis was that by holding the cost line for 5-10 years, Northwestern would come to be a significant bargain compared to the Ivies and the University of Chicago, which in turn would attract students who might otherwise have gone to those schools. I don’t know if that strategy worked but it seemed like smart one.

      1. William Mougayar

        The economics of supply and demand will catch-up to them.

    2. fredwilson

      It was long, very long

  19. Danielle Weinblatt

    I 100% agree with your comments here and would even argue that a high debt burden stifles entrepreneurship. If we could overhaul the way we think about the cost of education and the pursuit of entrepreneurship at our nation’s MBA programs, perhaps, only then, we would see more entrepreneurs coming straight out of business school. Some schools offer grants and loan relief to entrepreneurs and students that choose non-profit careers, but these are in the $10,000 -$20,000 range. I can’t afford to have a relief package that is merely 10 percent the total cost of my education. I wrote more about this here: http://www.huffingtonpost.c

    1. LE

      “and the pursuit of entrepreneurship at our nation’s MBA programs, perhaps, only then, we would see more entrepreneurs coming straight out of business school.”Keep in mind that you can major in entrepreneurship as an undergrad and or get an undergrad business education. And in fact entrepreneurship is probably one of those things that is most easily learned not in college although obviously a college education is helpful.

    2. fredwilson

      Thanks for the link Danielle. I will read it

  20. John Revay

    Fred – GREAT post1. Our oldest child (one of three – we have 12 yrs of undergrad education ahead of us)- is a junior in HS. We attended a college fair this past week – I am guessing there were 100+ colleges mostly from New England. A Few observations;A. College is a big business – each school had a small table, behind which stood one or two admissions people from each school -They were selling! ( Assume each customer would spend $200K +/- if they selected their institution).B. It was odd – each school had the same size table say 2X4, I come from the mind set of going to large trade shows – where the big companies/brands always have big booths. Each school was on a level playing fieldC. Where were the mobile apps – it was still pretty much a print thing – printed brochures, printed sheets asking for name address etc.D. Did not see many top tier / Ivy schools – No Yale, Harvard, MIT, Not even Connecticut College, or Wesleyan. They probably are always buying not selling. I did see the Coast Guard Academy2. Most important & worrying observation was Black & White!This was in Fairfield County CT – mostly a bunch of rich white kids and parents. There were several minorities in the room, and what was most troubling to me was that the minorities were all flocking to the state school & community college – it seemed like the haves and have nots

    1. Matt Zagaja

      UConn has a mobile app but its more focused on students. I think some of the ivies have developed them as well. As someone who looked at schools somewhat recently (now 7 years ago!) I don’t think a mobile app would have made a difference. Big things for me were the campus, available resources, and especially the culture of the students. Plus financial aid packages. A small catholic school in Fairfield county recruited me aggressively after meeting with them at one of these fairs but I ended up going to a small tech school in Worcester because they seemed a better fit and after aid were both the same price.

      1. John Revay

        Hey Matt,Fair point on the mobile app – my sense was that a lot of HS students carry smart phone…. I have always been amazed at going to large trade shows – that it is still paper/print small catholic school in Fairfield county – Attended Fairfield U (class of 1982), I grew up in Northern CT, going to a catholic college was important to my family, especially my dad…..I did not get into BC, & Fairfield was my second choice – I enjoyed my time their very much, made some great friendships (my roommate is still my best friend).

        1. Matt Zagaja

          Glad to hear. The catholic school I was referring to was actually Sacred Heart so maybe small was a bit of a misnomer. But it seemed small compared to UConn and some of the other schools I was considering at the time. Surprisingly Fairfield never showed up on my radar screen during my college search. A couple friends from UConn law went there and really enjoyed it though. Sometimes I wonder if smaller schools are better at delivering good educational product to students since they can personalize the experience more and be more responsive to student needs.

  21. Dan Lewis

    The easy solution is cheaper classes — online? — from known universities. Not U of Phoenix, whose brand sucks. Why? Because for current grads, outside of graduate school issues, your diploma isn’t worth much more than that brand of the university.I’m in my mid 30s. My classmates and I were mostly able to find gainful employment after graduation and have been in the workforce for over a decade. To the extent that we have significant student loans still, it’s because we also have graduate degrees, and are, typically, able to handle that.People graduating right now — and this has been true for the last three years or so — have the loans but *don’t* have the jobs. Their education is less and less of a differentiator (which is why, in part, that those who are able are taking unpaid internships even after graduation). Unless they have a degree from a STEM discipline, they lack expertise even though they have a “major.” They’re approaching “screwed,” and it is *because* of their education, not in spite of it.Meanwhile, the new generation of hiring managers are people my age. When we hire, we look at your BA as a pre-requisite. Have it? Check. Have I heard of the college? Check. After that? I don’t really care, except on the extremes such as MIT (excellent) or U of Phoenix (no thanks).A great example is NYU. They have the Gallatin School (… which is incredibly non-traditional, but at the end of the day is invisibly so to most employers.

  22. Abdallah Al-Hakim

    One of the problems of higher education nowadays is that students are encouraged to pursue post-graduate work without properly considering the return on investment. This is driven by old school mentality that believes that a few extra letters besides one’s name will deliver a stable job. This has resulted in students starting their working career at much older age (>30 years old) and in addition are burdened with significantly higher debt. I believe that individuals should start rethinking the value of post-graduate education or at the very lease defer until they have accumulated a few years of work in the ‘real world’. This will inherently improve the decision that one makes regarding post-graduate studies. There is definitely room to improve the conditions for repaying such student loans (at least in Canada) in order not to stifle young graduates at the beginning of their journey in building a career

    1. Matt Zagaja

      I’ve noticed that many students in JD and MBA programs pursue these degrees after a few years of work. I was unusual in pursuing in my JD straight from undergrad but my cost/benefit analysis assumed that the price of the education would continue to outpace inflation. This held to be true and they also recently eliminated subsidized loans for graduate education in the US from the government. However had I worked for a few years it is likely I could have gotten into a better school and/or gotten better scholarships at lower tier law schools since the market for law school collapsed. It’s hard to predict the future.Many of my friends in technology fields have their masters degrees funded or paid for by their employers. I think those tend to be more of a concern if you are doing it in a field where you are paying and job prospects are low.Finally I don’t think the Ph.D. or MD students have much of a choice. If you want to be a professor or a Doctor then that’s the path you have to take.

      1. Abdallah Al-Hakim

        In my experience, I have seen a rising number of students do an MBA without a work experience first. The business schools have done a great job marketing themselves and some people are convinced that MBA will solve their career problem. Regarding PhD (I am one of them 🙂 – the problem is that many who choose this career path are doing it at a relatively young age and for some it’s a way to delay entering the ‘real world’. The academic environment offers a very comforting zone for many students! My point was that work experience is so valuable and should be experienced before continuing on to higher education. Obviously this is a general statement and ultimately every individual will make his/her own decision based on their interests and aspirations.

        1. Matt Zagaja

          Ah, that is unfortunate about the MBA thing. I definitely agree that some people pursue graduate education to avoid the real world. In some aspects that was part of my calculus, but it was sort of odd being a younger person in a program with lots of older students.

  23. PhilipSugar

    My biggest problem is what I call the edifice and administration problem. If all of that easy loan money went to the instructional professors I wouldn’t really have an issue.However the reality is that it goes to beautiful buildings and administrators that make over a million in salary, with staffs that outnumber the professors.That’s the problem. You have a liberal arts student whose huge tuition floated those costs. They have no chance of paying that back.I hate regulation but if you limited loans to only the percentage of the instruction cost and made everybody float the rest you would have some serious pushback.It is pervasive. My son and daughter go to a great public school. Because of where I live it is stuck in the fifties and I mean that in a good way. Even though it has great computer labs the walls are cinderblock, the ceilings are drop ceilings, the office staff is lean. The quality of the eduction is superb. The knock on it is the building is ugly…..who cares?

    1. Anne Libby

      Agree 100%. I went to great schools. That said, I recently asked about the alumni relations/development headcount at one of my alma maters. I was told, 75. I actually thought I had misunderstood, and was hearing 17. But I’ve checked it a couple of places. 75.

    2. fredwilson

      Great points

  24. Patrick Dugan

    It’s so simple to fix: bring back bankruptcy potential. Now lenders have to evaluate default risk in their portfolios just like any other lender, money flows proportional to this risk, tuition adjusts as the supply of money chasing degrees is adjusted.Meanwhile, kids using cheap or free educational resources to learn how to start their own business or freelance practice will be way ahead of the curve financially.

  25. johndefi

    I would argue that if you don’t know the type of work you want to do in your life before starting college, you are starting at a significant disadvantage against those who do know. I can’t think of a comparable to the risk of paying for the wrong major and/or creating substantial debt at an overvalued school. The system is broken for many, but this is not recognized or valued at the age of 18 as it is many years later. The solution to debt and debt repayment should include a focus around the mitigation of the impact that mistakes at that earlier age have later in life.

    1. Wavelengths

      Wasn’t it an accepted tradition to take a year off before college to travel and grow up a little?Unfortunately, some of the scholarships and loans are only available to those going straight into college from high school.I know a kid who did an accelerated high school program and graduated in 3 years. Then he jumped into a CS program in a highly reputable engineering school — at age 16. Yikes. Yet the funding would not have been available for him if he’d waited a year or two.

  26. RudyC

    This topic is very near and dear to me right now since I have 2 kids in college. When they first began college I assumed that college was going to be very expensive. My oldest was being recruited to play baseball and my your daughter in volleyball. Baseball scholarships are plentiful but for volleyball most scholarships are offered at top notch east coast schools.That fallacy was quickly broken. What the universities don’t tell you about sport scholarships is that ALL your time is focused on the sport and not academics. Unlike hs baseball or volleyball that needed 2 to 3 hours of your attention, college sports demand up to 7 to 8 hours a day, 6 days a week. After the first year, fortunately he quit, the best decision he ever made.As far as the costs are concerned being a banker in the real estate sector and knowing how easy it is to receive student loans and hearing about ALL the costs involved, I thought tuition was going to financially kill me. It hasn’t. The UC system as I suspect most state schools throughout the country are great universities. Most state schools costs are about the same as a good private HS.As with most problems in society, the problems are numerous and not systematically one specific fault, although in this case, most of the financial problems come from the students and parents themselves.In my case, I found the baseball kid after quitting baseball had WAY too much time on his hands. We made him work. He now works 20 hours a week, pays for his expenses besides tuition and lodging which we do. He’s happy and were happy. The same with my daughter. Their roommates on the other hand, live off their student loans. That means tuition, food, rent and day to day living expenses, now that’s financial suicide if not insanity. Couple that with humanity type degrees and you have a recipe for a financial eclipse.

    1. Techman

      I agree with your sons decision. It’s not worth all that time learning how to play a sport you’re already good at, when you’re a education is actually going to pay the bills.

  27. William Mougayar

    Related to this topic, MBA applications have been declining for 4 years in a row. Is it the recession or the result of high costs of education?

  28. mikenolan99

    102 comments before Noon on a Sunday – this is a vibrant community!This post is right at the heart of what my family is going through.1. My wife is in the final year of her Doctoral program, looking for a career in Higher Ed.2. I work at a University in Entrepreneurship and the MBA program3. 1st Son is taking a semester off from his senior year at U of Minnesota to attend – a disruptive form of education. (In NYC on Friday)4. 2nd Son just started at Minnesota State, working, taking loans, plus my help5. Daughter in Ecuador her senior year of HS, applying online to Ivy league collegesI too just talked to our University President for about an hour on this very subject. He had stopped by a class where I hosted the CEO of US Bank for our MBA students. The President responded to a comment made by Richard Davis – something like “We are having the wrong conversation – this is not about Jobs – this is about developing Careers”Our President is keenly aware of the challenges facing Higher Education – everything from student expectations, the reliance on continuing education, rising costs, unfunded pension plans, and the debt bubble.Some of the better ideas we are implementing here are:1. Increase use of Associates Degrees – two year degrees that give a sense of completion, are more transferable, and allow students to enter the work force and come back easier into the system.2. A focus on four years – working inside the University to make sure that 4 years is an option for students – that classes are available for those who want to make it through with the least amount of expense.3. Continuing Education as a source of revenue and a feeder into Master’s programs and Certificate based education.

    1. Techman

      What do is load the page up and with the comment section show off it’s real time features. Realtime Comments a pretty cool. Even the votes are in real time.

  29. Matt Zagaja

    A more general thought about aid and measuring returns: What about career paths with high variability in returns? For example acting means there are going to be all sorts of people that are waiting tables on the side, but you also get George Clooney and Meryl Streep. Should we prevent the next Clooney from pursuing acting because he likely won’t succeed? Are we measuring median or average return in deciding what careers are aid worthy?

    1. Anne Libby

      I know a number of successful business people who started out as actors. (Including a bschool classmate who is now an entrepreneur.) Acting can be a path into sales, teaching, or any other field that requires communication/public speaking skills.

      1. fredwilson

        teaching is acting. the best professors are amazing at commanding an audience.

        1. Anne Libby

          Exactly! And leaders are good storytellers. So that literature degree could be quite useful.

  30. Guest

    I hear about the evils of “class warfare”, and how I shouldn’t express or foster envy. I will go ahead and admit it anyway: I am envious.We all learned at some point that we shouldn’t buy things we can’t afford:…I think I could really enjoy raising kids, and that if I put my mind to it I could do a great job at it. But not if I don’t have the money. Not if I don’t have the money to stop working during their formative years and spend lots of quality time with them. Not if I don’t have the money to send them to great schools, and give them their best shot at a path to making a great contribution to the world. If I’m going to do something I should be prepared to do it right, to do it all the way.I grew up poor enough that I qualified for free lunches at the public schools I went to. I feel I turned out fine. But I’ve seen more now. I hear more about the opportunities rich people have. I’ve been hearing all about the 1% (or .1%), and how upward mobility in this country is no longer what it was a generation ago.There are over 7 billion people in this world now, and limited resources. We judge how well we are doing using GDP, which in large part measures how quickly we are consuming those resources.Adding to this picture feels to me like something most people simply ought not do. I wish I could afford it, but I can’t. If I can’t provide my kids the best this world has to offer, or close to it, I am inclined not to play.This is not to say that I don’t think everyone should have the right to do all these things and give it their best shot. Just that for me, if I’m being realistic, I do not see it adding up.

  31. Brian Manning

    When I was a kid, only the rich dads and moms drove brand new cars with all the bells and whistles. Today, you can buy a brand new, reliable car, with great gas mileage with all the bells and whistles for about $12,000. The price of a new car has come down substantially since I was a kid for two key reasons 1.) global competition and 2.) technology has led to massive increases in productivity (output per unit of input has increased significantly).This is not true in college education. The price has gone up (dramatically) and the output has stayed almost exactly the same (professors still teach about 40 students per class and it still takes them four years to produce a degree). Colleges have been insulated from global competition and disruptive technologies.But I think that will change. We’re already seeing this in healthcare where large, for-profit health systems are stealing market share (and the best doctors) from the established academic systems. I’m frankly surprised it hasn’t happened at a more rapid pace in education.Soon, I think we’ll see the for profit colleges like the University of Phoenix using their capital to steal rock star professors from the Ivy Leagues and using technologies like high quality web conferencing and social networking to increase productivity. In short, they’ll be able to provide an equal education to a larger group of students for a fraction of the price.In fact, some believe that they already are. Fred’s right that the MIT education isbetter than the University of Phoenix education. But I wonder how much of that is perception rather than reality? The MIT degree is a credential that opens doors for someone throughout their career, regardless of whether or not they learned anything. So there’s an enormous demand for it. But as the for-profits begin to prove that they’re able to provide the same quality education at a fraction of the cost, the consumer perception of the top schools will decline and demand will shift towards efficient and affordable education and away from the brand names.At that point, the high priced institutions will be forced to either innovate significantly or bring their prices down to a more reasonable level. Both are good outcomes.

    1. William Mougayar

      Cars are a good analogy. I can see an education bubble bursting.

    2. Dale Allyn

      I recently had the opportunity to watch an M.I.T. MBA degree holder operate as a chief of operations (COO) at a startup with some well known players. This person came from a general management position at another large and well known tech entity. My observation was from an unusual vantage point with quite a clear view, without actually working with them.While the individual was a very nice person, in my opinion they were one of the least effective business managers and problem solvers I have ever witnessed, at least considering the position and credential.As a business person with experience in the trenches, IMO it’s an emblem and nothing more.

      1. Matt A. Myers

        They didn’t have experience needed.Here’s a little story I’ve been planning to share on my blog at some point, so I’ll likely include it in the longer form once I get to it;It was a grade 10 or 11 business class in highschool. My teacher premised what he was about to stating he could probably get fired for telling us what he was about to tell us.He told us if we have good ideas and know we have good ideas, to do them instead of going to university – to apprentice with someone if needed or work on a business for 4 years, instead of getting $40k (in Canada, subsidized education) in debt and owing that money, you would have 4 years of experience, likely no debt and be better off and likely further ahead than people who went to higher education.Now, that’s not verbatim, though it was just as short as that. I tried the higher education piece, though I just want to do research and curriculum structures just don’t seem to work for me – so I’ve inadvertently been doing my own thing, and so far it seems to be working pretty well for me..

        1. Dale Allyn

          Matt: “They didn’t have experience needed.”That’s part of my point – this person was not fresh out of school and this was not their first leadership gig. They had years of experience, in fact, running a bigger project and others. They were simply not a great business manager in the circumstances under which they were positioned, even though they had the resumé including the MBA from an “elite” school.I don’t disagree that what experience they did have may not have been the “correct experience” to achieve greater effectiveness, but their previous experience was actually picture-perfect (on the surface) for the new position I described.Needed skills and experiences come from many sources, and a degree from a quality school can provide signaling, but it can also be a distraction and mask reality vis-a-vis one’s real abilities to deliver.

          1. Matt A. Myers

            Many roads to the same destination.

          2. Dale Allyn

            Agreed, Matt.

    3. LE

      “Fred’s right that the MIT education is better than the University of Phoenix education. But I wonder how much of that is perception rather than reality?”It depends on how you define “education”. The vetting process and people who attend a good school, as a group (read that again because it’s important) provides a total environment that is much more conducive to learning. In my mind there is no question about that, having experienced it first hand back when I was in school.Having gone from a public school to a private high school, and then having transferred the first year from a pretty good private college to an Ivy League college, to me the differences in both cases were major and remarkable.The student body for one in both of the “better” schools consisted of people who had a deep desire to learn (once again the collective body not any individual) and that came across in interactions with them and made learning much easier then when you are in a group with a bunch of slackers who are simply going through the motions. These are people who worked really hard to get into these schools and had parents that stressed education and they simply had a different way of looking at the fact that they were in school. So the environment is not just about good professors but in who is there sitting next to you, and in the entire school learning the same things that you do.You simply can’t duplicate that in a University of Phoenix environment. You don’t have all the right ingredients.”Soon, I think we’ll see the for profit colleges like the University of Phoenix using their capital to steal rock star professors from the Ivy Leagues”That very well might happen of course. But where is the money for those rock stars going to come from exactly? And to someone in academia it may be more important to be able to teach at a known good school then to move your family and teach at a lesser school because you are making more money. Even if the money is important (and don’t forget that I believe if you teach at a good school it’s a good way to have your children’s education at that school payed for or for your research to be published, right)And there are people teaching that don’t even care about money in the equation at all. Steve Blank teaches at Stanford. (There are rock star professors at all good colleges who are teaching who aren’t traditional academics. They’ve actually done something and are allowed to teach because of what they have achieved.) My guess is that Blank probably wouldn’t easily switch to teaching at 2nd tier college because of the prestige of being associated with that school gives him many other benefits.

      1. Brian Manning

        Great comments, LE. Thanks.Two points:1. I agree completely that Phoenix doesn’t provide the same ingredients that MIT does. But this is a problem that, I believe, can be solved with technology and innovation. I’m not saying that Phoenix is the one to do it, I’m saying that education needs innovation and increased productivity and that I believe there’s enough money in this sector to make those improvements inevitable. Is MIT more productive than it was 20 years ago? Are they producing more education for the same unit cost like the car companies are producing more cars for the same unit cost? Why not?2. Here’s another question. Let’s assume for a moment that we measure the success of a student’s career after college on a scale of 1 to 10. And that the average Ivy League student’s career is a 9 and the average non-Ivy League student is a 5 (use whatever measure of success you like). How much of the Ivy League student’s incremental success can be tied to the 4 years of education they received as opposed to the following 40 years of carrying around that credential? Of course we don’t know the answer to this but I’ve noticed that Ivy Leaguers get way, way more doors opened for them than those that went to an average school whereas their actual output and performance seems to generally be only a little bit better or about the same.

        1. LE

          ” Let’s assume for a moment that we measure the success of a student’s career after college”I think there are some things that are hard wired into society that are difficult to measure and if you try to use numbers, facts and figures to make a point you can make the numbers say anything you want.Take this as one example. “A better looking person gets further in life”. We could easily find facts and figures to argue either side of this point and win. There have been studies on this subject (and even TV “20/20” type shows have done segments on this.) But the truth is we all kinda know it’s a big advantage to be a better looking person. Doesn’t mean you can’t overcome it. Of course you can. But yes it does open doors for you.So you have to go with your intuition and the intuition says that by every yard stick, that great degree, in general, is worth the money. At least today it is. And it has been.Let’s take Fred as an example. As has been pointed out by Fred (and Gotham Gal) she is a large part of his success (and I believe this to be the case since she is a huge hustler and my dad growing up was always pointing out “Joannes” as the reason behind many different men’s success. He had a phrase for it “she pushed him”.Ok, anyway say Fred did not go to MIT. And let’s assume Fred was also not a good looking guy. Even if Fred had met Joanne would Joanne have married Fred? Would Joanne’s mother and father have liked Fred? How do you measure that? How do we know what played into the fact that she married him or if she would have if he didn’t look the way he did or have the degree he did? How do you measure things like that?”Ivy Leaguers get way, way more doors opened for them”Part of it is that it does open the doors and impress people. The other part is that in your own mind it gives you greater self esteem as well which increases your ability to function.

          1. JLM

            .Go house hunting with your wife and tell me that your wife is often not the driving force behind your success..

          2. Brian Manning

            I think I agree with most/all of what you’re saying. The key question for me, I think, is if you take away all of the factors that make a person successful and just isolate the actual quality of the education a student receives at an Ivy League college versus an average college, how much more successful will that person be? I truly don’t know the answer to this, but I haven’t seen a lot of reasons to believe that the education itself is leading to significantly better outcomes.

    4. Guest

      This does sound great. However, at present, I think the University of Phoenix may be actively earning itself an increasingly negative perception, not a positive one.See for example the second part of this recent New York Times visualization:

    5. LE

      “technology has led to massive increases in productivity (output per unit of input has increased significantly). This is not true in college education. The price has gone up (dramatically) and the output has stayed almost exactly the same (professors still teach about 40 students per class and it still takes them four years to produce a degree). Colleges have been insulated from global competition and disruptive technologies.”There are things you can automate in manufacturing that you can’t do in education.That’s why a car, say the bottom of the line Mercedes Benz, cost about $29,000 in 1985 and today it costs about $35,000 rough sticker price. You can thank automation and robots which do the jobs of auto workers that previously would need their pay increased every year.Certainly one of the biggest costs in education is labor. It is also keeping up with the arms race among colleges (you can thank Mortimer Zuckerman for that (US News)).In a business, say a McDonalds one of the things they do is create an environment where employees don’t want to stay working for the company. Why? Because it’s easy to train new workers and if employees enjoy the job and like working there they will stay. And if they stay each year they want more money. Having to pay people more money without an increase in productivity means you have to make more money some other way or cut other expenses. How do you do that when one of your biggest costs is labor? This is not the same as Fred having to pay his receptionist (if he has one) more money. Because the cost of the receptionist is not a large part of his operating costs.So here we have people in academia who tend to stay in academia and each year they expect to get paid more money. So the labor costs increase (as well as health care, benefits etc.). Why is it such a surprise that the cost of college has gone up? It shouldn’t be.

      1. Brian Manning

        Once again, excellent points. I understand that colleges won’t increase their productivity at the rate that a manufacturer would. But the fact remains that over the last 20 years car companies produce much better cars at a cheaper price, far, far more efficiently. And colleges have gone in the opposite direction. They produce roughly the same education in the same amount of time for a far higher price. I don’t have the answers, but I do believe that that reality makes this industry ripe for disruption.

        1. Chuck

          The education lobby will see to it that the industry is not disrupted.

      2. Techman

        Well done, well said sir. Good comment.

      3. andyidsinga

        in education – I think youtube style video and soundcloud style audio is the “automation”. Once great content is produced it scales. In addition $ will flow to those that can both create great content, and answer questions from the masses.I can’t wait to start seeing resumes that include, under the education section: “Mastered the concepts of X/Y/Z Khan Academy Videos as measured by the project that I completed and documented on my blog at [some_url]”

        1. Dave Pinsen

          One of the useful features Elance has is objective testing and ranking for certain skills. So I’ve hired developers from there who scored in the top 10% in their programming language / environment. Couldn’t care less where they went to school.

          1. andyidsinga

            thats pretty cool

          2. Dave Pinsen

            I’ve gotten better work, at a lower price, from a high-scoring Elance contractor than from an RL referral with a degree from Stanford.

        2. Jack Sarvary

          Love the idea but very hard to implement, especially on softer skills.. Trustworthy accreditation is one of the last hurdles to moving education completely online.

          1. andyidsinga

            very good point about softer skills …question is what is a good way to measure them?

    6. Dave Pinsen

      “Fred’s right that the MIT education is better than the University of Phoenix education. But I wonder how much of that is perception rather than reality? The MIT degree is a credential that opens doors for someone throughout their career, regardless of whether or not they learned anything. So there’s an enormous demand for it. But as the for-profits begin to prove that they’re able to provide the same quality education at a fraction of the cost, the consumer perception of the top schools will decline and demand will shift towards efficient and affordable education and away from the brand names.”No, that’s not what will happen. The top schools will remain the top schools by being the most selective in which students they admit; that’s what gives their degrees most of their signaling value, not the perceived quality of education. People who go to Harvard are considered to be smart because Harvard admits smart students; Harvard doesn’t make the kids smart, they’re smart when they get there.In the past, all college degrees had a certain cachet and signalling value, because only a relatively small percentage of American kids (the smartest) got them. But as economic prospects for most Americans have dwindled in recent decades, more high school grads have been enticed by easy credit and school marketing pitches to get watered-down college degrees. As more marginal students have gone to college, that has, in turn, devalued the college degree.

      1. Derek

        Part of the reason the Ivies attract top students is because blue-chip companies like Goldman Sachs prioritize their recruiting efforts there. It’s a virtuous cycle.Nonetheless I’ll wager that every graduating class at every school in the country has at least one person who’s qualified to work at Goldman Sachs. It’s just not economical for Goldman Sachs to bother recruiting at, say, the University of Wyoming.So perhaps the real disruption opportunity is in the recruiting process.

        1. Dave Pinsen

          I wouldn’t be surprised if the top students at the University of Wyoming were as smart as Harvard students, but Harvard students have an advantage over them: they know other Harvard students. So by hiring a Harvard student, you can tap into the Harvard alumni network, which includes a lot of wealthy and well-connected individuals.

          1. Brian Manning

            Great point.

        2. Brian Manning

          I can’t remember where I heard about this but one of the big consulting firms did a study on how first year associates performed ten years after they were hired. They looked at a variety of factors — including where they went to school. They found that, more than anything, there was a huge correlation between those associates that were the top performers and those associates that had blue collar parents.

      2. JLM

        .Brilliant comment, really. Of course, the greatest element of the MIT and Ivy League success story is the raw material.I would bet that the rejects from Harvard applications would do as well as the successful applicants as you are dealing with a very rarefied gene pool already when you even think you have a shot at getting in..

        1. fredwilson

          students make the university. teachers are second. everything else is largely irrelevant except to people who are easily impressed.

          1. JamesHRH

            This is interedting. Higher education is mostly a social asset, if this is true.You get a label that has long term cachet.You get a network of great people that, if properly tended, lasts a lifetime.Not an intelectual exercise? #ironyoflife

      3. Brian Manning

        “The top schools will remain the top schools…”.I don’t believe that the biggest companies will remain the biggest companies forever anymore than I believe that the top schools will remain the top schools. Every organization that gets to the top will fall eventually. And they generally fail because they get comfortable, stop innovating and brush off seemingly minor threats — such as for-profit education.

        1. andyidsinga

          or because they brush off free education 🙂

          1. Brian Manning


        2. Jack Sarvary

          The top schools will remain the top schools for exactly the reason given (as well as the unmentioned network effect), but these schools will change their methods. Many top schools, including Harvard, MIT, Stanford, UPenn, etc, have already pushed into the more cost-effective online arena. Harvard, MIT, and Berkeley have edX. Stanford professors have started Udacity and Coursera, the latter of which has now partnered with almost 50 other schools to offer an incredibly wide selection of classes. The question is not will University of Phoenix replace Harvard, but rather how will Harvard learn from the University of Phoenix to improve its product?

  32. Jay Janney

    There’s no one single answer tofixing the costs of education. Because of tuition remission, I pay notuition for my oldest son but, I pay more for his education (I’ nottalking about the room and board charges) than I did for mine 30 years ago.College costs more for many reasons (in no particular order)1. we hired a great many more administrators than 30 years ago. Astaggering number more. At my alma mater, they have over 100 directreports to the provost: 30 years ago it was fewer than 15. Enrollment hasstayed stable in that time frame.2. Students demand greater amenities.3. Faculty in high demand fields monetarize their degrees (meincluded). Starting salaries in a b-school are 6 figures base, plusheavy support.****************The biggest challenge is not the high cost of attending; it’s the even highercost of not engaging. Students, by and large, think college is aboutnetworking and credentials, and they struggle to understand the biggerpicture. Those two bits matter, but they only help get you launched; theydo not help you move forward much at all. Before my son headed off tocollege, I gave him two bits of simple advice (never walk home at 4am alone),and before each class begins, and before doing any homework, ask what you canlearn from the assignment that you could apply to your career someday. It’s okay if the answer is “not much” one or twice a semester, but,beyond that, you need to wrestle more with the material.Here’s a sad example. We encourage our kids to enter our school’selevator pitch competition (decent cash prizes). Two years ago I askedstudents to write down how they could apply doing that to their careers; fully 3/4ths didn’t think it could help them at all, and was a complete wasteof time. I asked them; when you attend the career fair, how longwill the recruiter give you before they decide whether or not to consider youfor an interview. Fully 1/4th of my students thought the recruiter wouldgive them 20 minutes, and could make an offer on the spot. Only ahandful recognized that mastering an elevator pitch is a good job skill as partof an introduction to potential employers.***********I raise this point because some of us have done very well. Some of usworked really hard to get a lot out of our degrees. But many studentshaven’t learned to do this, and for them, college will never beaffordable, at least until they learn this. How to teach how to get somethingout of your education, I do no know. I wish I did.***********As far as the high cost of administrators goes, they arelargely shielded from market pressures. When that changes, I suspect we’ll see fewer admin lines.

  33. george

    Student debt has now surpassed $1 trillion dollars. To place this into context, total credit card debt is $850 billion, and mortgage debt is $13.5 trillion. This is the first time in our history that education debt has exceeded credit-card debt. Approximately $300 billion of the education debt has accelerated since the third quarter of 2008. Is this a problem? Very much so! In my opinion, jobs are the prescription. Families/Students are willing to take on the risk and payback but the economy needs to improve to allow the ROI equation to work.

  34. Q

    I’ve never heard an explanation as to why we can’t make (public) universities free to attend. There would still be an admissions process to get into the better schools, but the complexity of financing every student individually would be eliminated. If we agree that a bachelor’s degree today is as generally necessary as a high school diploma was 100 years ago, why shouldn’t we want everyone going to college, without having to make a cost/benefit calculation and viewing degrees as some sort of meal ticket. Society as a whole will benefit, as it always does from a more educated populace, so why not distribute the cost among the tax base? Also, as society shifts to an entrepreneurial culture from an employee culture, I can only think that the broad set of skills that come from a deep general education will help kids to better administer their own lives. Personally, I’d be more open to publicly funded universities than publicly funded healthcare.

    1. Pete Griffiths

      Sounds like Europe.

    2. Obvious Snark

      If you really believe this, then you can send me $40k for my daughter’s education (that’s 4yrs at a decent state school, not exorbitant). That’s essentially what you’re saying. Sorry, I’m not willing to fund someone else’s college tuition before I take care of my family.We’re at a 11 TRILLION dollar deficit right now.Another entitlement program isn’t the answer.

      1. Q

        If there are 20M college students in the US (that includes private schools, for the sake of example), with a 4 year tuition of $50k, that’s a $1 Trillion check taxpayers have to write (a bit more than the 2008 Stimulus Package and a bit less than the cost of the wars in Iraq/Afghanistan since 2001). If the # of individuals w/ tax liability is 100M (rounding down), then that’s $2500/year in taxes to send everyone to college. Which translates to a 5% tax increase for a median income ($50k) filer. A 10% reduction in the annual military budget ($600B) would reduce it to a 3.5% tax increase. Should the cost be borne by the median filer, though? I think it should be borne mostly by the HNW ‘job creators’ who are being rewarded with a more skilled workforce (and likewise, if any of these college students grow up to be ‘job creators’ themselves, which they might be more likely to do not being saddled by debt).I agree, that with an $11 Trillion deficit, now is probably not the time to introduce an initiative like this, but during healthier fiscal times, I think the argument for it is sound. Education is more of an investment than an entitlement, and it seems like America was better off when the government was more comfortable making investments…

    3. k77ws

      “Free” what do you mean “free”? Educate yourself — nothing is free. The cost is just transferred to someone else. You think professors time is free? You think a doctors time giving “preventative care” is free? Just because the user of the service doesn’t have to pay for it does not mean it is free.

  35. Doug Gibbs

    Keep the loans, but take the incentive to abuse the loan program away from the institution. How would you do this? Don’t pay the institution unless the student completes the course work and passes. That is the simple answer, the reality has to be more complicated.Say your kid signs up for a class. Something happens two weeks into the semester, whatever, the class is too hard, the professor is a jerk, your girlfriend gets pregnant, all the usual reasons for leaving. The student is on the hook for 2 weeks prorated cost of the course, plus a penalty. The penalty needs to be large enough to discourage dropping out, but not as much as a full semester. The school gets also gets a prorated payment, and a small portion of the penalty. The school has to be accredited to accept student loan money. No diploma mill for massage therapy can get funds. The accrediting can be a carrot for the federal government to encourage industries. If we need more welders, accredit more welding schools.They government check goes directly to the school, and payment arrives after the class is complete. Sorry, but you can’t use the loan money to finance a startup while ditching classes.I would also add a competency exam and penalize schools with low scores with less money, but I’m a jerk about things like that. This keeps students from building up debt for incomplete classes, and stops the schools from abusing the government gravy train, and giving the incentive to see the student succeed.

    1. fredwilson

      oooh. i like where you are going with this line of thinking. pay for performance!!!!

  36. Paul Gu

    I’m the Product Manager at Upstart (, a venture backed startup in this problem-space. The original inspiration for our company was actually exactly the observation that student debt has become massive (as other commenters have noted: $1+ trillion notional outstanding), and that student debt is often crushing to young people because it is unresponsive to their income level. We wanted to see payments become a limited percent of a person’s income, and so we’re building a platform that lets young people raise money in exchange for a small percentage of their income for their first 10 working years. Some of our early pilot participants are directly using the money they raise to reduce their student debt burden, essentially swapping debt for something more “equity-like”, if you will. For every participant, we believe this way of raising money reduces risk and allows him or her to have the financial freedom to make the right career decisions, rather than be limited to only the ones that can cover the student debt payments right away.We use public and private data on the ROI of different degrees and universities to determine the amount of money someone can raise on our platform, and the amount of income they’ll need to share (we never allow more than 7%) to raise that amount. Our hope is that this process also helps push people to think more critically about the ROI of different life decisions, especially education.It’s extremely encouraging to see the amount of interest on this problem, and always really valuable for us to see different perspectives on the problem and how it might best be solved. Looking forward to the rest of the discussion!

    1. fredwilson

      i like that you are bringing a market model to this problem

  37. Semil Shah

    Hi Fred, Jon Bischke and I co-wrote this piece in April ’11, it might be of interest to you on this topic, especially as it relates to bloated overhead costs that universities have gotten fat on:

    1. fredwilson

      cool. i will check it out

  38. Guest

    I graduated from a top MBA program in 2010 — my parents don’t have a lot of money the only option was

  39. David Cohen

    Or, we could begin mentoring students at the high school level on ways to put themselves through college.One of the best hires I’ve ever made was a young lady who bankrolled her way through college – she started two businesses, paid for her whole degree, and graduated 100% debt-free – not a penny borrowed. She had a mentor to help her do this.Just imagine what kind of grads our colleges would produce if the kids learned how to self-fund their degree. Aren’t those the kind of kids we want starting businesses and solving problems?

    1. Anne Libby

      Along these lines, Gen Xers and Boomers can encourage young people to question “internships,” especially of the unpaid variety.I met a college student at an alumni event who was a little unwilling to tell me that she was living at home for the summer and didn’t have an “internship.” She was working at Target. (AKA an old-fashioned summer job.) Once we got over that hurdle, she told me that she was learning a lot about “guest relations.”If her parents had been there, I would have congratulated them. Ending the summer with money in the bank and a learning experience? A good thing.

    2. fredwilson

      i like this. as i mentioned in the post, i paid for a lot of my tuition at both the undegrad and grad level by working while in school. and i learned a ton by doing that too.

  40. Pete Griffiths

    Imho the situation is indeed out of control. The continually escalating cost is creating a massive debt mountain. School loan debt is now materially bigger than credit card debt.”At $13.5 trillion, mortgages account for the lion’s share of the average American family’s debt. Credit cards are the third largest debt category at $803.6 billion. What takes second place? Student loans. Student debt stands at a whopping $1 trillion.:When times are good and companies are prepared to hire graduates with liberal arts degrees and train them this debt may be manageable but when times are hard they don’t hire to train and it isn’t manageable. Such loans are extremely difficult to discharge in bankruptcy.” To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.”It’s ugly.

  41. David Meyer

    The fact is that there are different needs for different students — and the majority to go non-selective schools. Prior to co-founding UniversityNow I didn’t understand the industry at all — I viewed it through my own experience. But there are low cost options emerging that are high quality and flexible, providing a real alternative to people that need a degree but will never have the kind of return that you did, Fred. Thanks for an insightful piece.

  42. Leigh Drogen

    In order to formulate decent education policy we need to look at this situation through the lens of incentive structures. Right now there is little if any incentive for the higher education institutions to work at getting their graduates jobs when they leave. Even the top institutions are not directly incented to provide this service. Because of too much money available for loans, which has blown a massive bubble, schools know that they are going to have a steady flow of students year after year whether or not their graduates are able to obtain jobs. At the same time, because so many are obtaining degrees, the value of those degrees is seeing massive deflation. This while costs are skyrocketing.The way to solve this is to link the future earnings of students to what they pay for their education. The student would get a free education but would have to pay X% of their after tax income for X years.This would accomplish a few things. It would incent the schools to focus on disciplines where students have a high chance of earning quality salaries, providing better supply of labor to the market where the market needs it (read software engineers). It would incent the schools to help students throughout the first part of the careers, the more the student earns the better off the school is. It would eleviate students from “debt” as they would technically be selling “equity” in themselves. Debt is a horrible instrument that enslaves people.Education needs to be a partnership between institutions, students, and the labor market. When students are paying 40K/year they can not be studying English lit. We need to align everyone’s interests.

    1. fredwilson

      bingo!!!!that’s exactly right

  43. Aaron Giroux

    Just make the government stop guaranteeing student loans and the cost of higher education will go down. Government guarantees in the housing market is what encouraged private companies to make stupid loans leading to the housing bubble.

  44. Dad

    Spoke to my brother this weekend and he has significant student loans (about 2x the minimum down payment on a house back home). At 30 he’s delaying a family and unable to save for a down payment for a house in part because of his student loans requiring nearly half of his monthly income (the economy is tough and there isn’t a lot of work for the family architecture firm he works at). I realized that this generation’s inability to save for a down payment for a home until much later in life is going to have wide reaching impact across our society that extend far beyond the individuals with the student debt. Some of these are the young middle-class professionals that in past generations have driven our economy in ways that they won’t be doing now. Something we as a society might want to think about.

  45. Druce

    Most online schools exist to collect Federal subsidies, provide little value even to those who graduate, and stick them with student loans which can no longer even be erased in bankruptcy. It’s a total scam and a disgrace.The good news is there’s an opportunity for decent schools and technology to democratize quality education.Higher education is a lot like medicine, afflicted with cost disease, heavily subsidized, limited and complex choices for consumers, everybody wants to settle for only the best and wants someone else to pay for it, patients/students don’t follow health/study habits to get decent results, there’s a certain amount of gold-plating and blatant ripoffs, and the money doesn’t always go where it’s needed.

    1. fredwilson

      great comment Druce, particularly the comparison to health care

  46. Richard Kain

    As a public policy matter, we tend to mix the democratic imperative of universal (hopefully good) elementary & secondary education — and higher education which is by definition more limited but we push for “everyone” to get a college degree, and fund it indiscriminately. Having warped the market, we get sub-optimal returns.Society needs historians and sociologists but not an artificial supply of them, and they need to be higher quality. The vast majority of colleges (private and public) are not training their liberal arts graduates to be able to write, read or research at minimum levels necessary for high value white collar work. If should be federal funding at all in higher and professional education training, if it is going to be there it needs to discriminate between occupations, and not treat it as every applicant’s right. We need and could justify subsidy for (among other fields) programmers, nurses, foreign language skills, and heavy equipment operators in natural gas fields: the Labor Department calls the shots for the Education Department. Film students, roll credits, sorry. @fredwilson:disqus you mention being a beneficiary of federal loans and understandably don’t want to hypocritically foreclose on others having the same opportunity, but isn’t your personal case an example where the program was unnecessary? Wouldn’t the private market would have likely evaluated your educational path as a good risk and entirely borne it on its own?Love the high quality discussion threads here, thanks.

  47. kidmercury

    fred and most of hte people reading this grew up in a different time. degrees were cheaper and the ROI was much higher. now degrees cost too much, fill your brain with junk info, and provide you with connections you can likely obtain in other ways at a much lower repeat the #1 track on kid mercury’s broken record, all problems related to the economy (debt, high prices, poverty) stem from monetary policy. everything else is a band aid that treats the symptom rather than the underlying cause.monetary policy will get fixed in some way because the current system is unsustainable. in the mean time, learn a real skill, build savings, avoid debt, and spend as little time as possible in formal school.

    1. LE

      “reading this grew up in a different time. degrees were cheaper and the ROI was much higher.”Children also worked harder, were definitely less entitled, had less distractions and after school “activities”, and didn’t fuck around as much.There was not the same ostentatious display of wealth coming at you from all directions like there is today either.”fill your brain with junk info”That’s up to the person doing the learning. You can get whatever you want out of school. If your going to simply take cues from how your peers spend time you will suffer for it by ending up being average.

    2. kidmercury

      also that stupid criminal law bush jr passed that made it impossible to declare bankruptcy to get out of your student loans needs to be repealed yesterday. it is economically flawed and helps drive excessive college loans, in addition to enslaving the future.

      1. k77ws

        agree with that. totally distorts a normally functioning market.

  48. gorbachev

    Additionally student loans should be allowed to be discharged when filing for bankruptcy.The politicians who put that law in the books sure handed their insurance company buddies a nice gift, with the expense of the misery of thousands of people.

    1. kidmercury

      agreed. i find that law to be incredibly reprehensible, it sickens me to think of it.

  49. youflavio

    Fred, what about all those useless degrees that people take because they are incapable (or unwilling) to take the hard ones? Universities, in some way, are promoting all that load of BS that people are taking as courses. Please watch what Prof Hanson has to say on the subject:

    1. fredwilson

      we shouldn’t loan against them

  50. Scott Barnett

    There are over 2,000 4-year colleges in the US – while it’s clear that a degree from MIT, Wharton, Harvard is wildly prestigious and gives a graduate a leg up, I do not believe they are the only quality places to get an excellent education. Personally, I got my undergraduate degree at a public school (SUNY) which I chose over more prestigious private institutions which would have cost me 5x more annually. I wound up with an outstanding education and got my “dream job” at the time (Bell Labs) right out of college.It is not right that we burden the next generation with so much debt that they can’t see themselves clear right after graduation – and I’m concerned we’re getting close to the “haves” and “have nots” that already distinguish the 1% and 99%. All American high school students should get to an excellent college education if they want it at a price that they can pay back. When I graduated college, my first year salary at Bell Labs was equal to 2X what I paid for 4 years of college. If my daughter (who is a freshman in college) is LUCKY, she will make 1/2 of what she pays for 4 years of college – and she is also going to a public school (which she too chose over more “prestigious” private school options). THIS is the problem we need to solve – I too believe in the strength of a college education, but the costs are just too high, simple as that. I don’t see any outcome that can be better than the mortgage meltdown, because the parameters are nearly identical – we are asking students to “overpay” for a college education due to the “status” that a particular university diploma offers – knowing full well most of these students will never be able to afford to pay off the loan.

    1. fredwilson

      great way of framing the problem Scott

      1. Scott Barnett

        thanks – now we need a great way of framing the solution…. I’m still thinking about that one.

      2. Scott Barnett

        One other thought…. similar to wildly successful startups, we tend to forget that there are plenty of people who go to the top schools and do not become a huge success – there’s an assumption that once you get into an MIT or Harvard that you are “set”. As I told my daughter, college is NOT the destination, it is just a step along the way.I personally feel that an individuals makeup, hard work, tenacity are a much better indication of success than the brand name of the school that a person’s degree is from. It’s certainly likely that a higher percentage of people that go to MIT have these personal attributes (which got them into a top school in the first place), but anybody who is driven and talented can and will be successful, and the college brand name is just one part of that overall package.

    2. DaveGoulden

      Agree. There have been arguments that Government subsidies (of debt) are increasing the costs of tuition, but in California we have the opposite problem.A reduction in government subsidies for the operating expenses at the UC and State systems are forcing tuition up to make up the difference. I would bet that other states are going through the same issues.Of course, pensions and benefits need to be reigned in, but as a society we need to prioritize education as a collective endeavor.

      1. k77ws

        More money is not the answer.

  51. David Semeria

    I attended the UK version of MIT on the public’s dime. I got in through luck and hard work, but I’m pretty sure I wouldn’t stand a chance now.It’ easy to say that university entrance should be based purely on merit, but if you look at the exam results from state vs private high schools, you’ll see that private schools would win on merit too.This explains why parents in the UK fight over getting their kids into the best fee paying schools for 5 years olds (the process starts at pregnancy!).I think the only real way to level the playing field is via collaborative web-based learning.If people can dedicate their time to creating a global encyclopedia, why not also dedicate time to helping needy kids pass their exams?It would be a similar form of giving back as you mentioned in your post, only focused on time rather than money.

    1. Dave Pinsen

      There’s no way to level the playing field. If your school was filled with needy kids on scholarship, it would no longer be considered elite, and rich parents would send their kids elsewhere. They are paying, in part, to insulate their children from poor kids.

      1. David Semeria

        But that’s my point Dave. If you go to a crappy school with crappy teachers and crazy classmates, there’s still a way out IF YOU REALLY WANT IT. In the evenings you connect to the web and relate to your “web teacher” who is helping you purely because he/she wants to give something back.

  52. alphaG77

    The person who asked the question is viewing the problem of the “education bubble” through a distorted lens as the reasons for cost inflation for higher education are not the same across the board. A university like MIT provides the infrastructure needed to conduct innovative research – undergraduates benefit from access to the principals of that research (the professors) and the ecosystem it creates. The reasons for cost of tuition increases are vastly different from a (fill in name) liberal arts college in upstate farm town USA. For example, some cost inflation is in part due to less government funding being funneled in that direction – which is a political question for both the current and last administrations – but not nearly as exciting for the media to weigh in on.

  53. alphaG77

    Re: “Bubbles are driven by easy money that drive irrational behavior. Our student loan policies do some of that.” — 100% agree. But there is an easy way to fix that, allow student loans to be cancellable in bankruptcy! Banks have literally no risk for offering as much money to students as they can; add back some risk for doing that and maybe the bubble will deflate a bit.

  54. Techman

    Hey Fred, just wanted to say that I found some typos in the article. About 2. Not bad considering how much you had to write.

    1. fredwilson

      i fixed one of them but not the other. i saw it but then i couldn’t find it again. it’s hard to proof yourself sometimes. can you point them out to me?

      1. Techman

        I’ll work on finding that for you. I forgot the location of the typos myself.

      2. Techman

        Students that attend institutions that can deliver higher returns should be able to take our larger loans

        1. fredwilson

          Yes. That was it. Out not our. Will fix when I get to a computer

          1. Techman

            I’m assuming that you are on mobile right now. Too bad that TypePad does not have a good enough app (Blogger’s app sucks too), and according to you, the mobile browser crashes to much. Have you tried using Dolphin Browser? I am using it now as my default, and it is good. Uses the same engine as Chrome. Subject: [avc] Re: Student Loans and the Education Bubble

  55. LE

    I know a woman who has been out of graduate school for more than a decade who dedicates one of her two paychecks a month to paying back her student loans. She is spending half of her take home income on her student loans. That is nuts.What’s is nuts is that there was no thought on anyone’s part to the chances of getting employment in any reasonable time that would allow her to pay back those loans.Whose fault is that?It’s not the fault of the college that is expensive (and a decade ago it was less expensive, right?) (Yes there are law schools that are overselling so I’m sure admission offices do this as well even in the liberal arts) After all you can always buy something that someone is selling, take a chance, and not be able to afford it later (house, car, wedding etc.) It’s the fault of the people who guided her who allowed her to get in over her head and make the decision to get the graduate degree without fully understanding the prospects. Or perhaps the prospects looked good for what she was doing a decade ago, and that changed. (I know of people as everyone does who went to law school and aren’t practicing as attorney’s today and are paying back those loans with jobs that have a non-attorney’s pay). That’s not really much different then someone who buys a house when they are employed and then for whatever reason they loose their job, right? Is that Toll Brother’s (home builder for those overseas) fault? Not really, right? Is it the government’s fault? Not really. Unless they want to have an FTC to make sure academia is honest about job prospects. And that becomes more layers of government management and jobs for us to all pay for. Just because people are stupid and can’t protect themselves adequately.Without knowing the woman’s major, where she went to school, or whether there were other options that she could have done to lower her education costs (say go to a state school) it’s hard to speculate but it certainly seems that someone did not guide her well. Or things changed in the market for what she was trained for. Or both. Or she had other issues that prevented her from being fully employed.It’s natural to place the blame and make a boogeyman out of the easiest target. But maybe there needs to be education in high school so that both parents and children understand the risks of taking on debt for both dubious and “sure bet” careers before they become encumbered in debt.Added: As far as “guide her well” it’s also possible that she knew of the prospects or the risks she was taking or decided to choose a field with bleak prospects and simply didn’t care and now she has a problem.

    1. alphaG77

      Why shouldn’t the bank making her loan have the burden of figuring out what her job prospects are before writing her loan? just like, why they should own risk when underwriting mortgages – it forces them to do their homework.

      1. LE

        Banks are to stupid to pull that off. The people that work for them that is. Maybe get a third party involved who is independent. Just make sure they aren’t paid by either party to do their job, right?Seems to me the more likely shift of burden should be on the college as they are in the best position to evaluate the person they accept and the career path they have chosen. Of course that’s going to get rid of many gut majors with no prospects, right? What do you do for students who don’t know what they want to do?

        1. alphaG77

          well that is what a properly functioning market-based solution would look like. if that isn’t desireable than we should be looking to increase government loans

  56. JLM

    .What an interesting topic and what a wealth of experience, opinion and discussion. Well played to all.Education is as much about delivery as it is about content. I attended Virginia Military Institute a school founded in 1839 as the school for the “second son” who would have to learn a trade since the “first son” got all the inheritance under the Colonial rule of primogeniture.First son went to Washington & Lee University (great traditional old Southern school with a fabulous law school). Of course, it was Washington College until Bobby Lee was exiled there after the Civil War. The VMI cadets were tasked with protecting his life as there was a genuine sentiment to execute him.At VMI, you studied engineering and you marched to class and you did not miss class and you did your homework because you could only go out on Saturday nights and had to be back in barracks by 10:30 PM.And, by God, you learned your subjects. They literally beat it into you.VMI, in my day, routinely was #1-2 in the number of engineers who passed the EIT on the first exam.Beat the pants off the “finer” schools and believe me in the 1960s at the height of the Viet Nam War, we did not get the best raw material.But VMI had a system and the system worked and if you did not buckle down to their system, they marched your ass right through Limits Gates and said good by.And nobody really cared whether you liked it or if they hurt your feelings. Almost all of my professors were VMI grads with PhDs and a lot of CIBs (combat infantryman’s badge) and jump wings and Rangers.Big point: Professors were graded on how many of their cadets passed the EIT on the first try. At VMI, they keep score on the Professors based on the results of their product — the cadets.VMI continues to produce the highest per capita number of CEOs in the US — remember it is a very small school; with class sizes of only 250-350 but everyone is taught to be a leader.Even in the worst of times every VMI grad had a job within 90 days of graduation. Lots go into the military.What VMI really teaches is CHARACTER and while we may all roll our eyes at such a sentimental and archaic notion in our jaded and cynical view of things today, it is what happens on a campus (military post) that cannot be duplicated on line.I traded 5 years of going in harms’ way for a degree in civil engineering. It was the best trade I ever made. I also earned the VN Era GI Bill which sent me to grad school.Anyone can get to college and grad school in a similar manner today.It is time for America to start grading the teachers — look at that mess in Chicago — and to start using objective criteria to create both real and financial efficiencies. It can be done.We do not need any more poets or historians, we need taxpayers. We need technicians. We need BMW mechanics for all the VCs..

    1. fredwilson

      i drive a Vespa!great comment JLM. missed you around these parts recently.

  57. Guest

    To be honest, most of the above article is bullshit.I’ve already invested enough time arguing over the web in the case against college. I used to keep up with UnCollege, but I no longer have the time to follow their activities.A few things to think about:A. There will never be a fair system for scholarships and financial aid. Taking out a loan is not “aid”. In hindsight, I would have used that money to help bootstrap my current business. Bubbling in a scantron should not qualify someone to receive money. Nor should one’s gender or ethnicity.If they don’t offer students a good deal, then they must not want them there.B. Information is free. Name something that can’t be learned through the Internet as opposed to a lecture hall. Most of the expenses are a waste of money for the students.Theory & relevant experience are two different things, and school only helps with one of those. Work is easy to come by, and a lot of it doesn’t require half the skills learned in school. Do grocery baggers need to read? No? Then why are literate people bagging groceries?C. Having a bachelor’s degree is not a requirement to starting a business. It is, however, necessary for entry level grunt work in most cubicles. What does that mean for that to be accurate in modern society?D. “High Quality Education” is bullshit. Let’s defined Education: ” the means through which the aims and habits of a group of people sustain from one generation to the next.[1] Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts. In its narrow, technical sense, education is the formal process by which society deliberately transmits its accumulated knowledge, skills, customs and values from one generation to another, e.g. instruction in schools.”It is nearly impossible to not be “educated”. Unless one is raised by wolves, they have had to have adapt their behavior based on the behavior of other humans around them. Whether that was the principles of astrophysics, or how to produce crystal meth, something was learned by the individual.Public education does not inherently improve society.From the students prospective, too much of it is battle of Authority vs. Youth Culture. To succeed academically, you have to abide by authority figures. To have a good social life, you have to meet the standards of the current Youth culture (cliques, fraternites).What makes a “good” school good? Calculus does not change as one’s geographic location changes. So how can one institution “better” than another for the study of mathematics?What about college athletics? what other country has so many institutions so attached to their athletic programs? to what end? (Penn State sex scandal)And how can a prospective student tell the difference? Of course every institution will attempt to portray themselves in the best light. No one will say “Our school sucks. don’t go here”. Most campus websites can barely manage to keep an up-to-date calendar on there. Some of the online software & tools available to students are universal. With textbooks, I was fortune to find a torrent copy of some of them, saving me money.E. “Academia” hasn’t changed since the Industrial Revolution. It’s all about an individual meeting the approval of a pre-established, arbitrary group. What is a doctor? Which doctor is the best?I never understood why my High School had better equipment & facilities than my University. Every time the professor had to leave the room to find more chalk, an eraser, or even a stapler, I asked myself this: How can a lower level school have more than its superior?In conclusion, if a school doesn’t admit you or offer you money, then don’t attend it. If you haven’t figured out what you will do with your life by age 18, then spend 3 more years thinking about it. There’s no rush.P.S. I realize that this is enough material to write a post of my own. I may end up doing that since I was able to type this out in less than an hour.

  58. Owen

    Can someone explain what it means for education to be a bubble? I don’t see an economic catastrophe should the price of education fall since this wouldn’t devalue degrees already received. What exactly is meant by this? Does it just mean that education is over-priced?

    1. k77ws

      Yes, basically that education is overpriced. Just think of the housing bubble — cheap and easy access to credit due to relaxing of lending standards (which would otherwise have denied mortgages) artificially inflated the value of homes. Similar phenomenon now in education.

  59. John Frankel

    Eloquently put. Though government subsidized debt seems to be part of the answer, it is in fact part of the problem of creating student debt slavery ~ as you know student debt generally survives bankruptcy. Educational institutions compete on the quality of their sports arenas, gyms, air conditioning etc. This attracts students but leads to massive cost inflation. It is not sustainable. There will be a solution, and the only question is how long will it take. The issues are less issues for MIT and Wharton, as demand massively exceeds supply, but 3rd and 4th tier colleges will feel it first. Demand will wane and online education will replace them.

    1. fredwilson

      totally agree John

  60. Owen

    After reading the comments, it seems like there are a large number of people who think Government subsidized debt is fueling the cost increases. My intuition tells me that this is probably somewhat relevant but it is more accurate say that the costs are simply aligning with the value and the demand. It is common sense that increased demand for education would drive up the price. The way the system works now is that the sticker price goes up but the actual cost are lower because of government subsidies. In addition, it is logical that anyone who can afford to go to college should. These two factors combined make it more expensive.Suggesting that decreasing the government subsidy would lower prices is the same as saying that decreasing the government subsidy would put college out of reach for some people. Consequently, this would decrease access which may at some point decrease costs but in the mean time access to college has been cut off to a large segment of the population. It seems sensible to me that lower cost and universal access should both be goals and do not have to be mutually exclusive.I personally know many people who didn’t go to college or dropped out due to cost but were more than capable of finishing a degree. This choice was not in their long-term economic interests but the immediate burden of cost was obvious and overwhelming. I think we should all empathize with 19 year-olds who make this decision.My question for those that don’t think college should be subsidized is how would you provide universal access? In other words, how do make sure people who could be more productive members of society and want to go to college, choose to do this? Financial obstacles don’t seem like a just way of doing this if we believe in a merit based society. Also, it should be fairly obvious from our adoption of universal primary education that educating everyone is a common goal worth the investment.

  61. Mihai Badoiu

    I’m also the product of student loans, and having gone to MIT (undergrad and PhD), it turned out to be a great investment.However, I’m not sure how much I got vs how much I could have gotten just because I had certain interests. It seems that the material of the stuff I was interested on was online, in the spirit that students scribe lecture notes and also the problem sets with solutions get posted. I don’t feel that I got much feedback from the lecturers and generally I worked on problem sets on my own. At the end of the day, interest, curiosity and willingness to work hard was what did it, not the university. MIT was just a stamp. In the PhD program, the tuition is a sham (nobody pays, in fact you get paid a stipend), as you consume very little of the university’s resources in theoretical computer science. In fact, you give back, by putting MIT on all your publications, which increases MIT’s prestige.I’m looking forward for more on coursera, udacity and edX. I hope they also expand to high school material. It seems to me that short-term curious students are going to benefit, as well as some people that want to change jobs and are willing to do some classes.From what I can see, you can have all sorts of technology that can help the teacher be more efficient. (problem sets graded automatically, clickers to get feedback from all students in the classroom, problems designed based on the level of the student, interactive exams, etc) I believe part of the problem is that the unions are stopping basic technology entering the classrooms, because that will decrease the number of teachers and they will lose power. Monopolies get broken by the government, but here we have an organization (teachers union), 4.5 million members strong that monopolizes the teaching labor, increases costs and stands in front of progress.

  62. John

    One other challenge that you don’t mention has to do with the restriction a massive debt places on someone who attends a high priced college. The restriction comes in the form of limiting the professions that person can pursue because in order to pay off the insane debt total they have to find a high paying job (that they may hate). I see this as a flaw in your idea of offering more tuition credit for those who go to schools with a higher potential return. The simple example is someone getting the MIT debt and then wanting to teach high school.The problem is that it’s nigh impossible for someone with MIT debt to choose professions like a teacher. This is a scary thing to consider when you think about K-12 education, but it also is scary because it means that a person’s college debt is restricting their choices. Instead of doing something they love and they’re passionate about, many often turn to the high paying job which they hate.One of my college professors taught an important principle about living modestly which correlates to the above discussion. Living modestly (which would include not taking massive debt for school) leaves so many more doors open to you. I wouldn’t have been able to do my startup company if I’d not lived modestly and continued to grow my living expenses to match or exceed my income.I saw this professor a number of years after I was in his class. He then related an even more valuable part of living modestly. Living modestly is an incredible gift to your children. By living modestly your children can choose any profession they want as opposed to choosing a profession that is able to provide for their “lavish” lifestyle.I fear that many rich parents have done this to their children and we’re doing the same to our children if they accrue massive debt for a college education which restricts their professional futures.

  63. jgwacker

    Umm, aren’t student loans capped as of 2006 at 15% of “discretionary income” and 10% as of 2011http://www.washingtonpost.c…

    1. fredwilson

      for some student loans

  64. pointsnfigures

    backed a company that was bringing transparency to the loan market; doing a great job so far. I think it starts in JK-12. Allow school choice, and innovation will condition parents to accepting and utilizing different non traditional forms of education. Will change colleges eventually.One truism, the more something is subsidized, the more imbalances you get. Look at all the subsidies in higher education and the change in demand from outside the US, you will see why prices are higher.

  65. Dave W Baldwin

    Improving Education is worth striving for. IMHO, we need to be doing the push at the earlier age level. At this point, writing letters, numbers and beginning word recognition is taking place at Kindergarten which will have impact. Unfortunately, Math is being taught wrong and leaving too many behind. Moving into the middle grades would be the place to begin critical thinking (which is our biggest failure) and in High School start showing what exactly these lessons will enable (setting reverse engineering toward the creative vs. take something already made and copy it).On the college side, there are many options for everyone including Stanford’s online push to expand the community. Don’t mean to rain on parade, but just throwing money at the University System for University System sake will not improve the end result. Disruption has to come from multiple angles and true sharing of knowledge promoted.

  66. AnnaMerkin

    Wholeheartedly agree!! I was fortunate to get a full academic scholarship to a state university (not highly ranked) and to subsequently gain admission to a top-ranked MBA program. The latter educational opportunity was financed primarily with loans. It’s over a decade later and I’m still making payments on the MBA loans because I chose a path that included several operating roles, finally landing in a series of start ups, rather than the traditional banking/consulting path of my peers. I have few regrets for may career choices but had I known then what I now know, I would have taken out loans to obtain a much better undergraduate education (and the better opportunities that would have accompanied that education.) Unfortunately, those advising me did not “believe” that one should take out loans for college.

  67. holograham

    I disagree that the government needs to “get creative” to solve college education funding. College education funding was never broken to begin with…government intervention has caused much of the dysfunction we are seeing today, yes – even Fred’s example from his own personal life of financing his education with government loans. There is no way you can have a government system that will effectively tease out the Fred Wilson’s from the college flame-outs. Why? Simply put, there is no incentive at the implementation level for government to perform that function. Obviously at the macro level, we want an educated populace but at the micro level there is no true incentive system the effectively regulate that amount of monetary transfer. The government would have a hard time measuring ROI on a micro level per potential student or even aggregating it. Even if they could to some marginal degree, we have a burgeoning private sector that would LOVE to offer loans to qualified students who they can risk-assess to determine their payback potential. IMO government student loans are hurting individuals chances to receive funding for college.I see no reason to mandate a cap on payback levels. I am frankly surprised Fred would even mention that as a possibility as there are already several institutions that deliver loans in this manner (a few startups have already chimed in on this thread!). We already have the wheels in motion for this market change, why force it on people who want to be able to pay back in different ways? Let the market bear out the best models for providing funding to prospective students. Let students who make poor decisions bear the responsibility. Let predatory lenders go bankrupt and become vilified through the social media outlets that have proliferated (partially from Fred’s investments!)

    1. ShanaC

      without the ability to get rid of debt in bankruptcy, how will the market react and make conscious choices about lending?

      1. holograham

        Agree with getting rid of bankruptcy retention protection for student loans to let traditional market forces work.

      2. k77ws

        Agree — no need to stop bankruptcy processes. Another example of trying to eat the cake and have it too. Laws of economics are immutable — Politicians can intervene (manipulate and distort) all they want, but supply/demand and incentives will endure.

  68. Educredit

    Kids believe thatif they don’t get into a great school, then it’s not worth studying at all. Whycommit to a long term loan if you won’t be able to find a good enough job topay it back? Kids shouldn’t be worried about how long it would take them to payoff a student loan. Instead they should be focus in how to better themselvesand how they’re going to give something back to society.High tuition andstudent loan accessibility is killing our society’s motivation to opt out forhigher education and a better future. I’m aware that technology is not thesolution, but it can open new doors and opportunities that a few years ago werecompletely unreachable. We must use the power of no frontiers to communicatethat there is a solution and that no boundaries will be set upon our society’swill to become better human beings.

  69. Brendan Reese

    Do people think it is possible to cross LinkedIn API data (school, major, employment track record) with Salary data to calculate an expected ROI for any school/major path that lies ahead for an expected applicant to a university. Wouldn’t this data be more effective for decision-making than US News rankings, etc. Regardless, something needs to be done in this space.

  70. Travis Bochenek

    I’m sure it’s been mentioned already, but I see top teachers/professors becoming the draw, similar to top athletes. Perhaps we need to build a “fantasy league” which ranks and rates professors across subjects, schools etc. I actually see a lot of opportunity there. I wonder if the top Universities really have the top talent. I agree with you Fred, that students make the universities. If they could see where the best minds for their focus were based, perhaps that would level the playing field a bit.I do agree that there is a giant bubble here, and something needs to happen. Going into skilled trades is a far better bet for a large portion of the population these days and the “social stigma” around it needs to be addressed. A good friend with a fishing boat made the observation that most of the owners of large boats in his marina are such people who run their own businesses. I can’t fathom students choosing 4 years of school and a masters program to become a social worker making $35k. The ROI is simply not there.

    1. ShanaC

      Maybe there is something wrong with the way we certify social workers? If that is the pay, why does the education cost so much?

  71. falicon

    a day late, but gigaom just published a pretty good article related to education and debt ->…Money quote in my mind: “Why was Gu pursuing this? Because his friends were taking jobs they didn’t want because of student debt, he told Girouard. Bingo.”

    1. ShanaC

      day late is fine…

  72. Otto

    The quickest way to ruin a good business is to hire an ivy leaguer to run it.

    1. k77ws

      No — hire the Government to run it!

  73. Otto

    Also surprised that none of the many comments I read discussed government and its role in creating this bubble.

  74. satjot

    I remember seeing an initiative where investors would make investments into the education of a student. Their returns would be a % of the students income over some years after graduation, capped at some % of course. Does anyone recall something like this?

  75. griggle

    Make Tuition a % of income earned x years after graduation, include % of any company formed during those years as well. Then good degrees get paid and bad ones no longer exist. Universities could also offer an option to buy out ahead of time (traditional).

  76. k77ws

    C’mon man! Are you serious? Can’t believe I just read this from Fred Wilson. These days, it’s very simple — Government subsidization of education (in fact complete takeover of the student loan market) has led to increased demand for education, which has resulted in rising prices — and decreasing ROIs for students. For an analogy, look at our healthcare system. It’s simple economics, it really is.Capping loan payments as a % of income is so absurd I don’t know where to begin — only in a government subsidized market can this work. How about we also force banks to do the same thing for mortgage lending? Or for small business lending. Hey small business — tough year? You only have to pay us back an amount based on your net income. Or how about you apply the same kind of thinking to venture investing? You can see that in a normal lending market, and a marketplace of free enterprise, this approach simply would not work and there is no reason why education should be different.How about we make people RESPONSIBLE for the debts they take on so that they have an INCENTIVE to do something producing with the loan money? Giving them below-market, taxpayer subsidized loans and then linking it to their income will continue to give us underwater basket weaving majors who can add no value in the real world.So how about this — how about we let people with a profit motive do the lending, not the US Government. I’ll bet my paid-for house (student loans paid, too) that this type of system would work infinitely better than what we are getting from the Feds right now which continues to result in massive misallocation of capital.

  77. Louis Chatriot

    As a French student who also got a masters from a US university (and one of the most expensive, Stanford), I have to say that the US system puzzles me. Having to take more than $100k in debt at a young age to get access to education is something I can’t understand. Education is a right, which is why almost all French universities are free (you have to pay ~$300 per year).It is true they are not nearly as beautiful nor as well equiped than their american counterparts. We don’t have 40,000 seats stadiums, huge sports facilities or big computer clusters. Teachers are also less paid. But that doesn’t mean the education is worse. As Fred said in the comments, the most important factor in a university’s success is the students, and then the teachers. The rest (e.g. the $1M a year the football coach receives) is irrelevant, but still impacts the loan we have to take.

  78. Abigail Francis

    Somehow university is dependent on their students too, so Universities should make an easy plan for students to pay back there loan.

  79. John Revay

    I was surfing around Sat night (our oldest is a junior in HS) I was looking for open house dates – working a building a calendar of schools to visit….I dropped over the Wesleyan ( Fred I know your daughters go there…as well as some of your partners…)I came across this page…”Here’s what you need to know about how we handle financial aid: if you’re admitted, we meet your full demonstrated need, making it possible for you to attend Wesleyan whatever your financial circumstances.”……”The average grant is around $38,000 and nobody is asked to borrow more than $3,500 as a first-year student, $4,500 as a sophomore, or $5,500 as a junior or senior.”Would it not be great if all schools were able to make this offer!

    1. fredwilson

      They are working hard on this

  80. fredwilson

    should my kids go to harvard for free?

  81. LE

    “don’t want any candidates to fail to apply because of the perception of un-affordability.”Seems that since there is a choke point of high school guidance counselors whose job it is to know about things like that it really doesn’t make sense to have a policy of eliminating tuition to achieve that goal for everyone.To me it sounds like some kind of a PR stunt and a way to appear to be less elitist to gain other benefits in some way. That’s my take. The currently do outreach somewhat with the “don’t worry about the cost” part. In fact the people that have to worry about college are not the poor and I think that’s been obvious for some time. The people that have to worry are the middle class the people who earn enough to not be able to get financial aid in any significant amount but aren’t rich enough to simply write a check. So they could achieve the same thing just by adjusting the income levels needed to get financial aid as well as do more marketing outreach to inform that group. I mean why not have people who can easily afford it (to be defined of course but I think you know it when you see it) pay full freight for the elite or any schools?But it sounds better to simply say “anyone can attend” we are diverse.

  82. Cam MacRae

    I see it every day so it’s not even a little bit stunning to me. A very large percentage of them should be enrolled in traineeships, apprenticeships, or other vocational training.

  83. andyswan

    The price-fixed loans cause the tuition price increase. Eliminate these gov’t backed loans and watch tuition drop dramatically and private sector lenders and competition of terms come back in the game.

  84. andyswan

    After insane price bubbles in every area that govt price-fixes (health, housing, education…)….I’d say it is more your principles that are failing.It’s really basic market mechanics.

  85. Matt A. Myers

    And unfit for making educated decisions and perpetuating and deepening the bad policy that ends up existing and not being overthrown.

  86. andyswan

    Correct…the problems it cannot address are well enumerated in the Constitution.The market exists and wins regardless of the schemes of government…that’s why we are discussing this today…because today is the result of decades of government “making college affordable” lol.Name one sector where govt has effectively kept costs below their natural state for more than one generation? Health? Housing? Corn?

  87. k77ws

    Yes but it does a much better job of allocating capital than Govt. Not perfect, but infinitely more efficient than a Gov’t which answers not to a profit motive.

  88. Cam MacRae

    tough gig, man. not only are parental aspirations/expectations in play, but getting business to invest in training is extraordinarily hard.

  89. Carl Rahn Griffith

    It’s a akin to having a fine crystal champagne glass – in the middle of the desert.

  90. William Mougayar

    Diminishing for sure.

  91. William Mougayar


  92. Rohan

    Nice bit of motivation for me as I write my MBA applications.. haha 🙂

  93. Guest

    Yes they should. Just because the parents can afford the tuition, doesn’t always mean they are willing to pay it for their children. I was lucky and so were your children.

  94. Dad

    I can see a “yes” answer to that if one can assume that you will make charitable donations in appreciation of the education they received if it had value and you can afford it.

  95. Matt A. Myers

    The problem with this is that then the access to high-quality education diminishes. The better difference to achieve is offering as much high-quality education, meanwhile not forcing students quality of life to diminish due to the costs – essentially by spreading out their re-payments with what @fredwilson:disqus suggested of the capped repayment. These loans will have to be provided by government, tax-payer money — society — and it is beneficial to have an educated society, who will be more productive, make better decisions — so society will and should support it.

  96. PhilipSugar

    I think the money all comes from the same place. I am only going to give so much. Coincidence but this morning I dug deep to give tuition assistance for inner city kids to go to parochial schools but I asked exactly where my money would go because I didn’t want it to go anywhere else

  97. Anne Libby

    Maybe US News, Business Week, et al should develop some efficiency measures for schools, as Charity Navigator has done for charities.

  98. William Mougayar

    Maybe you could bargain for a lower tuition given this info. #wishfulthinkjng

  99. LE

    I think Harvard (as one example and probably the “signature” case that you might cite) is very concerned with publicity. And they should be. Just like for music (something that you are certainly more of an expert in than I am that’s for sure) favorable public mention is important (actually any public mention is important for music, right?)Anyway, Harvard is on top and they have something to lose. They care greatly about maintaining their image and they care about encouraging giving by alumni as well as managing their relationship with the government, researchers, and obviously continuing to be the big dog with student applicants (world wide). This takes a constant flow of positive mention of Harvard and they manage that, as all institutions do, with a PR office.…Now of course they don’t come across as whores like Donald Trump does (and I say that with affection by the way) but they are not exactly Barbra Streisand either.And I’m not saying that there aren’t other reasons why they would offer free tuition to all either. People don’t always do things for only one reason.Perhaps I was a little to dramatic by calling it a “PR Stunt” but that was what came to my mind immediately (rorhrschact-ly) . As someone who has successfully manipulated the press on multiple occasions (front page WSJ as only one example) and who understands how public perception and opportunity is created, that’s one of the angles that I always consider. “Gimmicks” are important but of course that doesn’t take away from the benefit of what they are doing.(Just imagine what you could do for improving Lancaster’s image with a gimmick that would gain publicity and national mention. )

  100. k77ws

    they will be in the game if a) they are not crowded out by Gov’t and b) there is a profit to be made (i.e. they can expect to get repaid on their loan.

  101. k77ws

    Socialization of education is not what we need here.