Peter Thiel and the Great College Debate

Should more Americans go to college? I would have thought the answer is an unequivocal yes. The evidence is overwhelming that college graduates have lower unemployment rates, earn far more money, and are generally healthier and happier than those with a high school education or less. And young people seem persuaded. College enrollment rates for high school grads have risen from 44 percent in 1989 to nearly 60 percent last year.

Peter Thiel, the billionaire co-founder of Paypal, disagrees. And his willingness to spend millions of his own fortune to pay bright young people to drop out and start businesses earned him a national audience Sunday night on 60 Minutes, the country's most-watched news program. My first reaction was to agree with entrepreneur-scholar Vivek Wadhwa, who has lambasted Thiel for selling young people on the fantasy of hitting the entrepreneurial jackpot without an advanced education. “If you don't even have a bachelor's degree, if you don't even have basic education, basically you are beyond hope,” Wadhwa told CBS.

After listening to Thiel’s argument, however, I think he has a point. While he's utterly wrong on the virtues of dropping out (the fortunate few like Mark Zuckerman excepted), he's right that the compact between what college promises and what society is delivering is increasingly frayed.

Here's what the deal is supposed to be: parents sacrifice to help their kids through college because that is the surest road to advancement. But over the past two decades, the road has become a lot bumpier. Numbers compiled earlier this month by the Economic Policy Institute (EPI) show that the hourly wage of recent college graduates, after rising sharply at the end of the 1990s, has fallen back. Starting wages for college grads today are only slightly higher than in 1990, or just under $17 an hour in 2011 dollars. Unemployment is near 10 percent and underemployment nearly 20 percent.

And new graduates are entering the job market with much greater debt burdens. As tuition continues to rise, two-thirds of students are borrowing to earn bachelor's degrees, up from 45 percent in the early 1990s. Wadhwa rightly points out that the average debt load on graduation -- $23,300 – is not excessive, but that may only begin to count the costs. A Washington Post piece Tuesday, provocatively titled "Is College Too Easy?" noted that the time students spend studying has dropped steadily over the years. But the main reason seems to be that more and more students are holding down part-time jobs to finance their education, reducing the time available for classwork. In short, students are paying more, borrowing more, and getting less.

Thiel's response to these trends is to give up on higher education and encourage young people to take up plumbing or roll the dice on launching a business. That's the wrong response. If the EPI numbers for recent college grads are depressing, the picture for those with less education is positively Dickensian. Recent high school grads entering the workforce have an unemployment rate over 30 percent and an underemployment rate over 50 percent, and those lucky enough to find jobs are earning less than $10 an hour. As I know from playing the board game Life's Twists and Turns with my kids, with some luck you can make it big as an actor or an athlete. But the odds of winning the game go way up with a college degree.

Neither am I persuaded, however, that the right response is just to rally around the colleges as they are currently doing business. Sure, the elite institutions can keep raising tuition, confident that student demand far exceeds supply, the brand value of a Harvard or Stanford justifies the expense, and their large endowments will open doors for some who would otherwise be turned away. But state universities cannot play their traditional role as ladders of opportunity if funding continues to be slashed. California, which has the nation’s flagship public system, has seen state funding cut precipitously; it is now at the same level as 1997-1998, when there were 73,000 fewer students.

And both state schools and smaller private colleges need to get creative at doing more with less. This could include expanded online learning, greater specialization (not every school can and should be offering the full range of courses in all subjects) and new faculty hiring models that mix superstar professors with hands-on instructors. There are some fascinating initiatives under way, though the biggest ones such as EdX and MITx are led by the elite universities.

Peter Thiel clearly struck a chord when he said on 60 Minutes that college education is a “bubble.” Too many young people  are overpaying for a product whose returns are increasingly uncertain. But the product is one that both individuals and American society badly need. The challenge is to make it much better, and more affordable, than it is currently.