“It’s actually worse than a bad mortgage. You have to get rid of the future you wanted to pay off all the debt from the fancy school that was supposed to give you that future.”
-Peter Thiel (on the higher education bubble) 1
We are currently witnessing a drastic shift in higher education, the likes of which we have never seen before. It is undergoing a massive evolution from the current brick and mortar system to a more personalized and customizable alternative that will adapt to the learning style of the students. Education is one of the founding principles of communal living, and here at Valhalla we have made sure that it is an underlying theme in every one of our managing committees. But before we delve into the role of education here at Valhalla, let us first examine what’s wrong with the current system and the evidence that illustrates this so called “higher education bubble.”
In analyzing and evaluating the existence of a “bubble”, there are typically three phases to look out for: inflation, delusion, and finally devaluation. Let us simplify and explain the recent United States housing bubble with these three key phases:
Inflation: Housing prices go up
Delusion: Buyers take on increased debt and prices stabilize
Devaluation: Housing prices come crashing down
We are currently witnessing a similar sequence of events in higher education. In following I will provide you with some statistical data that supports this hypothesis.
Phase 1: Inflating Tuition Costs
The cost of a college degree in the US has increased by 1120% since records began in 1978. Let us examine some more statistics that emphasize this point:
- The 1120% increase in tuition cost is 4 times that of the Consumer Price Index increase and is drastically larger than the 600% increase in medical costs and 244% increase in food expenses2
- The cost of tuition at the average 4 year public university has increased by 15% between 2008 and 2010 and another 5.8% between 2011-20123
- The projected average total cost of a degree at a private 4 year university by 2018 is $267,308, compared to $30,367 in 20064
Phase 2: Delusion and the Accumulation of Debt
The bubble has been inflated, as witnessed by the rapid growth in tuition that has far outpaced the rate of comparable expenses. Let’s look at how this has impacted the amount of student debt:
- Currently, over 2/3rds of undergraduate students take out student loans
- Between 2008 and 2011, the average debt of a 4 year college student has increased by 17%
- Average student debt between the years of 2008 and 2011:5
- 2008: $22,650
- 2009: $24,000
- 2010: $25,350
- 2011: $26,500
- 10% of students borrowed over $40,000 in 2010
- National student loan debt surpassed $1 trillion dollars earlier this year, roughly 20% higher than the national credit card debt6
- Future student debt is expected to increase, as interest on the subsidized federal student loan is expected to double to 6.8% on July 1st, 2013, adding on an additional $11,000 to those enrolled in the 20 year payback plans (it was expected to double on July 1st, 2012 but the current interest rate of 3.4% was extended the day before)
With increased student debt comes an increased default rate (housing crisis anyone?):
- Just over 9% of students default on their loans within the first two years after they begin paying them back, with that number increasing to 13.4% within the first three years7
- A report released by the NY Fed last week on Q3 2012 outlines that the percent of student loan balances 90+ days delinquent recently increased to 11%, higher than the current rate for credit cards or any other consumer loans8
Phase 3: The Devaluation of the Degree
Finally let us look at some statistics that highlight the diminishing value of the degree:
- Half of the college graduates of the class of 2012 are either jobless or unemployed9
- 56% of bachelor’s degree holders under the age of 25 were either jobless or unemployed, the highest share in over 11 years10
- 39% of students under age 25 that do have jobs are working in position that doesn’t require a college degree. That number is 30% for 25-29 year olds11
- The average earnings for full time workers between 25-34 has dropped 14.7% since 200012
I think this graph illustrates the situation well:13
The higher education bubble is on the brink of bursting, and as a result many students are seeking less expensive and more efficient alternatives to the traditional degree. The expensive mediocrity of higher education won’t last much longer, and innovators are already starting to push forward a revolution that will fundamentally transform the landscape of higher education in the near future.
Here at Valhalla we embody and embrace this transformation. An integral aspect of communal living is the shared resource pool that is created when a group of compassionate individuals come together and impart their knowledge onto others. Sharing is contagious, and whether it is daily yoga or meditation sessions with X or a quick Final Cut tutorial from Rusty, the house is always abuzz with people sharing and contributing something new. As the world transitions into a knowledge-share economy, control is an illusion and relevance is derived from the co-creation of value. Valhalla is pushing us forward on this front, as we strive to create a world that is predicated on shared value for the community and not the all for one model that has plagued society in the past.
- Average student debt between the years of 2008 and 2011:5
Written by Alex Klokus
Life enthusiast who aspires to use technology to transform our daily lives. Non-conformist & minimalist fueled by an insatiable thirst for knowledge. Tends to have too many aspirations and too little time
