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The University Has No Clothes

Another possibility is that college is an investment—an expenditure on which one can expect high future returns. This answer is one to which many mainstream economists subscribe. When I spoke to Stephen Rose, a research professor at Georgetown’s Center on Education and the Workforce and the author of Rebound, an optimistic forecast of the postrecession economy, he pointed again and again to what he calls the “totemic number”: 74 percent. That is the financial benefit—the so-called B.A. wage premium—that economists calculate college graduates can now expect to reap relative to their peers with high-school diplomas. It is a number that has nearly doubled over the past 30 years.

Still another possibility is that the primary role of college today is to serve a “signaling” function—like an elegant business suit, an impressive B.A. advertises talent, pedigree, and ambition employers can use as a hiring shorthand. Thiel, for instance, received both an undergraduate and a law degree from Stanford, credentials that he was able to parlay into a clerkship with a federal judge, an associate position at a white-shoe Manhattan firm, and a job trading derivatives at Credit Suisse before he returned West to join the Internet rush.

But of course, Silicon Valley is a mecca of countersignaling—witness the super-status Zuckerbergian hoodie—and it’s no surprise to discover that in the land of the billionaire dropout, an Internet entrepreneur like Thiel sees evidence that higher education inhibits innovation. All he has to do is look around to see a new model university—the college of innovation and pluck.

Thiel does not dismiss those who say that higher education is a luxury good or that for some it might be a worthy investment, but he finds neither account adequate to explain the college bubble. It’s undoubtedly true, he said, that “it’s a lot more fun to go to college than to work.” And yet the fact that college now costs so much, and requires so much debt to complete, “probably leads people to be a lot more stressed out than they otherwise would be, so it’s probably a lot less fun than when it cost less.” His hunch is borne out by a comprehensive 2010 survey of freshmen that found emotional health to be at a record low—in large part because of financial worries.

“Not only is college a scam, but the presidents know it. That’s why they keep raising tuition.”— James Altucher

“College debt means getting stuck on a particular career track for the next twenty years.”—Peter Thiel

As for college being a good investment, Thiel believes the 74 percent wage-­premium figure to be as inflated as tuition prices. A Clarium report Thiel commissioned in 2009 analyzed government data to argue that, while the return on a college diploma indeed increased markedly between 1978 and 2000, that’s only because the return on a high-school diploma decreased markedly during that same period. “Relative to the past,” the report stated, “students who go to college do better than their peers who do not, but this is simply a mathematical result of their peers doing worse than in the 1970s.” At the same time, more college debt means it takes students much longer to pay back their loans—a consideration Thiel thinks economists are wrong to omit from their calculations. “It’s not just a question of if you get [a degree], you make more money,” he says. “It’s also a question of how many options you’re precluding for the future.” Just as during the real-estate boom people bought more house than they could afford, trapping themselves in burdensome decades-long mortgages, “lots of college debt means that you’re maybe stuck on a particular career track for the next twenty years.”

But if college is neither a luxury good nor an investment, what is it? For Thiel, the commodity college most closely resembles is the humble insurance policy. Americans have become terrified, he says, of what will happen to their children if they don’t send them to college. The recession, widening income inequality, growing job insecurity, the uncertain future of the welfare state, the increasing costs of health care—all have deepened the anxieties that made college such an attractive option for a rising middle class in the first place. “I think that’s the way probably a lot of parents think about it. It’s a way for their kids to be safe, to be protected from the chaos. You’re paying for college because it’s an insurance policy against falling out of the middle class.” The larger question this raises, he says, is, “Why are we spending ten times as much for insurance as we were 30 years ago? And does that tell us something has gone really badly wrong with our country?”

At the core of the Thiel Fellowship application is a pair of open-ended, Miss America–like prompts: “Tell us one thing about the world that you strongly believe is true but that most people believe is not true” and “How do you want to change the world?” Within weeks of the applications going out, responses began to appear ­online—on Facebook, on student blogs, and on YouTube in the form of PowerPoint and HD-video presentations.