The Purpose of College, Student debt crisis, and Rise in college alternatives
The Purpose of College, Student debt crisis, and Rise in college alternatives
Bootcamps & Apprenticeships vs. Thiel fellowship
This is Part 2 of my essay series exploring the source of the power held by Universities, alternatives competing with Universities in today’s age, and the real purpose of attending University.
Read Part 1 on the Genius of Peter Thiel in attacking the Ivy Leagues and high school dropouts bursting the college gospel.
The Purpose of College (is not learning?)
I know a girl who graduated from Wharton, University of Pennsylvania with a degree in Finance. She was a diligent student with a strong penchant for learning, which landed her a job at a multi-billion-dollar investment firm right after graduation.
On the first day at her job, she asked her manager whether they used CAPM, a calculated risk-adjusted interest rate to discount the cash flows. The concept had been used in all her Finance classes.
“CAPM?! To hell with that, we use none of those academic concepts here!” replied her manager.
And this was the poor academic soul’s first step towards unlearning her Wharton education. Alas, the markets in the real world don’t work like the markets in theory. As they say, “In theory, there is no difference between theory and practice. In practice, there is.”
This student is me. Starry-eyed and fresh-off-the-boat from India, the Ivy League education was my foray into the American dream.
For four years, I scrambled to soak in as much as I could from classes at supposedly the best Business school. I even audited classes just to learn, only to realize too late that learning in college often translates to academic theories with little practical consequence. What’s worse is that the academic knowledge was not only useless, but I also had to spend time unlearning it! So much for the best Business school.
However, most students are more aware than I was back then. They recognize that while college might want us to believe it’s a mecca of learning (a trap I fell into!), and one that molds the youth into “critical thinkers”, it’s an exaggeration to say the least. In the age of books and online learning, students recognize that there isn’t much learning happening in college classrooms, especially for non-science disciplines. And teaching critical thinking is paradoxical if the academic mental models themselves are flawed!
Why then do students continue to go to college? There are social and other reasons, but the biggest reason is to get the stamp of “college graduate,” a stamp that gets them credentialed for a job and confers them with some prestige.
Pay and Prestige conferred by the University Degree
There are predominantly two big reasons why students choose to go to college: Pay and Prestige. On average, a University degree gets students a higher-paying job than they would otherwise get. Prestige is the status bestowed on University graduates. However, the degree to which status matters depends on the University one attends. Going to an Ivy League confers a large amount of status and plays a big factor in why students go to these Universities. But the further you get in rankings from the Ivy Leagues, the status drops and plays a smaller factor into the decision making of students. As a result, for someone going to a top University, prestige plays a significantly larger role in the decision making. However, for someone going to a lower-ROI1University, getting higher pay plays a larger role in the decision to go to college.
“Higher education” before University
Before Universities were established, the transition from childhood to the workplace was laden with apprenticeships, and there was no concept of '“higher education.” A 14 or even 12 year old boy would apprentice at a trading shop or factory for example, before being employed full-time. Rockefeller, Amschel Rothschild, Da Vinci, all followed this path.
Apprenticeships are synonymous with working on the job, with your manager acting as a mentor and actively training you for a certain period of time. They are the prototypical example of “learning on the job.”
When colleges started being established, college became a gate between school and work. Instead of directly learning on the job through an apprenticeship, you first went to get educated before you worked. Soon, college became the norm for most smart students, leading to a boost in the pay and prestige conferred by the University degree.
However, for the first time in a decade, college enrolment declined in 2021. With Covid, students started awakening to the fact that they weren’t learning much while at the same time incurring massive student debt.
The Student Debt Crisis and the beginnings of an awakening
Bryan Caplan, author of the book The Case Against Education suggests how 80% of the value of a college degree is signaling to employers that you can conform, you’re conscientious to finish the degree, and you’re smart. He suggests that only 20% of the value is learning useful skills. However, because of the signaling function of the college degree, someone who goes to University earns more on average in white-collar jobs than one with just a high school diploma. A higher pay is desirable but at what cost? Inflated college tuition is negating many of the benefits of higher pay and eating away at the returns to the college degree.
The biggest criticism hurled at University is their skyrocketing tuition, and rightly so. As of 2022, student debt is $1.76 trillion. And as of 2021, 34% of 18-24 year-olds who aren’t currently enrolled in college say they can’t afford it; 29% say it’s a waste of money.2
In 1980, the price to attend a four-year college full-time was $10,231 annually—including tuition, fees, room and board, and adjusted for inflation. By 2019-20, the total price increased to $28,775. That’s a 180% increase.3
It would have been another matter if the higher tuition translated to higher pay as well. However, the average graduate salary for bachelors degree hasn’t budged since 1990. It was $62,000 then and is $62,000 as of 2023, adjusted for inflation.4
Part of the reason for poor returns to the college degree is a phenomenon known as degree inflation. This means that an increasing number of jobs require a college degree, even for jobs that don’t necessarily require college level skills. As a result, students are paying high tuition to obtain a college degree but are often finding themselves in jobs where they are overqualified and undercompensated. It is little wonder that students are saddled with loans, which on average take a little over 20 years to be repaid, and in many cases longer. In 1970, college graduates had on average of $1,070 in loans compared to $31,000 today.5
Paying high prices, taking on debt, not learning much, and not having salaries commensurate with the loans taken, results in a low return on investment (ROI) for many students. They have awoken to this. Enrollment rates have dropped, confidence in universities has plummeted, graduation rates are on the decline, and universities are shutting down. Since 2004, 861 colleges have shut down, with the number of closures increasing since 2014.6
In 2021, college enrollment at 38.1% was the lowest it had been since 2006. While the enrolment increased to 39% in 2022, the percent is still low compared to previous decades.7 Further, according to a Gallup survey, Americans’ confidence in higher education has fallen to 36%, sharply lower than in two prior readings in 2015 (57%) and 2018 (48%).
Students are voting with their feet and recognizing that it’s not worth their money and time to enroll in many of the low ROI universities. Many of these students are now seeking alternatives to colleges that would enable them to earn higher pay without a debt burden.
Let’s take a look at some of these alternatives.8
The Attack by Bootcamps: Can we solve for high-paying jobs without student debt?
We’ve established that for the majority of students not attending prestigious Universities, the main purpose of college is to get a high-paying job, along with additional career certainty. We also know that students don’t want to incur massive student debt in the process of obtaining a degree.
Entrepreneurs recognized this dilemma and pondered: Could we create an alternative credential that teaches students job skills and gives them access to well-paying jobs without going through 4 years of college and incurring massive student debt? As college was becoming unaffordable, jobs for software engineering were becoming high in demand. This was an opportune time for the emergence of coding bootcamps, institutions which provide students with coding skills in a few months to a year and place them at high-paying software engineering jobs. No college degree required.
The promise of coding bootcamps is to compress job-ready skills in 4-12 months instead of 4 years, with a focus on teaching you the skills needed for the job. Over the years, bootcamps have evolved to cover areas outside coding like business, nursing, product management, healthcare workers etc.
Although bootcamps have gained popularity, their student body is still a tiny fraction compared to college graduates. In 2022, 58,756 students graduated from a tech bootcamp in the U.S. compared to ~2 million students with a 4-year bachelor’s degree from college. However, bootcamps have seen a surge in growth post COVID, when the bootcamp market grew ~32% from 2020 to 2021, and 25% the following year.9
Despite the boost, bootcamps face their own share of criticism. Many students still struggle with finding a job after doing a bootcamp. Bootcamps have also been slandered for predatory pricing through income share agreements (taking a portion of someone’s income as tuition).
While bootcamps aren’t without their share of criticism, they have done a fair bit in changing the narrative around college from something that was so deeply ingrained in the minds of people to creating alternatives for whom college isn’t viable.
Apprenticeships rise again and College as middle-man no more
With the establishment of Universities in favor of apprenticeships, companies expected they could outsource training and filtering of job candidates to colleges. However, increasingly employers are waking up to the reality that colleges are not training students well for the job. Employers have to spend resources on training and apprenticing graduates anyway. As a result, companies like Zurich NA insurance and Accenture are expanding their apprenticeship programs, and others are dropping the degree requirement, especially in tight labor markets. Famous examples include Google and Delta Airlines. However, the critique here is that these companies have only dropped the requirement for some of the ‘back-office’ functions, not any of the ‘more significant’ or technical roles.
Worried about student debt, many students too are choosing apprenticeships in favor of college. Typically, apprenticeships have been associated with the construction trades. Now, they’ve expanded beyond that with 40% of apprenticeships outside construction trades and in white-collar industries such as banking, cybersecurity, and even consulting.10
There has also been a surge in total apprenticeships over the last 10 years, seeing a growth of 106%, with more than 600k apprenticeships offered in 2023. A consequence of companies offering apprenticeship programs directly from high school is that they have to design their own talent screening process as opposed to relying on college screening filters such as GPA. It will be interesting to see the new tests and screens companies use to rely on filtering.
If we look outside the U.S., apprenticeships in many European nations are much larger, partially because some of these governments offer a tax credit to employers offering apprenticeships. In 2022, there were 600,000 Americans in registered apprenticeship programs—a miniscule 0.3% of the US working-age population.11
During the same year, the share of working-age adults in apprenticeship programs was over five times higher in Canada, seven times higher in Germany, and a staggering 12 times higher in Switzerland. For example, Germany has an apprenticeship system called “Ausbildung” where students spend 70% of their time at work, and only 30% in college.
Perhaps, the U.S. will adopt some of the apprenticeship models from Europe.
Trade Schools / Vocational programs
Trade schools take a streamlined approach to education and arm students with specific skills which are typically hands-on in nature.
From spring 2021 to spring 2022, many trade school disciplines saw significant increases in enrollment in two-year skilled trade programs, including a 11.5% increase in mechanic and repair, a 127% increase in personal and culinary courses and a 19.3% increase in construction trades. Last year alone, enrolment in vocational-focused community colleges rose 16%. Meanwhile, enrollment at public two-year colleges dropped 7.8% and dropped 3.4% at public four-year colleges for the same time period.
Further, some trade professions, like 90% of the construction companies, are facing worker shortages which is driving up wages and in turn attracting more people to the trades. According to a recent Fortune article, Gen Z is increasingly choosing trade schools over college to become welders and carpenters because “it’s a straight path to a six-figure job.”12
As more data comes out, it’ll be interesting to see the evolution of trade schools and whether they can sustain their growth.
Humans want prestige: Bootcamps & Apprenticeships vs. Thiel Fellowship
While bootcamps, apprenticeships, and trade schools are viable college alternatives for many students, they don’t have the power to break the college gospel that permeates society. On the contrary, even though the Thiel fellowship is small in size, it has the characteristics of a powerful attack at the University system, capable of eroding the college gospel.13
The primary reason for this is because bootcamps, apprenticeships, and trade schools lack prestige. They can compete with Universities on pay, but not on prestige. No one who is accepted at Harvard is picking a bootcamp over such a college! As a result, the students who attend these alternatives are the ones who would have otherwise attended a lower-ranked University.
Contrast this with the Thiel fellowship which is high in prestige. It not only competes with the Ivy Leagues on prestige, it surpasses them by getting students at Ivy’s and other prestigious Universities to drop out in favor of the Thiel fellowship! As noted in Part 1, ~70% of the Thiel’s fellowship’s first 2 batches were students from Ivy’s or other prestigious Universities.
If the mission of college alternatives is to break the idea of the college gospel, they would have to compete with the top Universities. This is because the gospel of college hails from the Ivy Leagues, which were some of the earliest established Universities in America. And competing with the Ivy Leagues implies competing on prestige. This is why, even though the Thiel fellowship is a smaller attack compared to bootcamps, it is a more powerful attack as it pertains to breaking the college gospel.
However, even though bootcamps and apprenticeships cannot compete on prestige or play a big role in breaking the college gospel, they still provide an alternative to students who only care about earning a higher pay. But if their mission is to see the collapse of Universities altogether, by themselves they alas won’t succeed. Humans care for prestige.
Conclusion
As Universities come under scrutiny, some will try to adapt, and new Universities will spring up to compete with the incumbents. Further, the decline in the value of Universities might have some interesting 2nd order effects on society. I explore the emergence of new Universities, 2nd order effects of the decline in University, and open question on the future of Universities in Part 3. Stay tuned!
Please share this essay with anyone who might be interested in alternatives to college. You can follow me on X @aasthajs for more on the topic of alternative education.
ROI stands for “return on investment.” In the University context, it means what are the financial returns to the cost of tuition and the opportunity cost of attending college. High tuition without the corroborating incremental pay for careers relative to not attending college is resulting in low ROI for many students attending University. ROI is highly dependent on not just the college, but also your major. This article does a great job analyzing ROI for different U.S. colleges by major: https://freopp.org/is-college-worth-it-a-comprehensive-return-on-investment-analysis-1b2ad17f84c8
https://www.intelligent.com/1-in-3-recent-high-school-grads-skipping-college-because-its-a-waste-of-money/
https://www.forbes.com/advisor/student-loans/college-tuition-inflation/
https://www.self.inc/info/graduate-salaries-compared-to-living-costs/
https://www.bloomberg.com/news/articles/2023-02-28/student-loans-and-the-supreme-court-debt-is-up-2-807-since-justices-graduated
https://educationdata.org/average-cost-of-college-by-year#1990
Please note that I only provide an overview of select alternatives, and this is by no means a comprehensive list.
https://careerkarma.com/blog/state-of-the-bootcamp-market-2023/
https://www.wsj.com/articles/more-students-are-turning-away-from-college-and-toward-apprenticeships-15f3a05d
By college gospel I mean the gospel where it’s assumed that students who want a better future should attend college after high school. This is simply not true in many cases, however the gospel exists.