shaffer: I understand you think we’re in a big higher-education bubble.
THIEL: Yes. Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the ’90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned — you had to own a house in 2005, and you had to be in an equity-market index fund in 1999.
Probably the only candidate left for a bubble — at least in the developed world (maybe emerging markets are a bubble) — is education. It’s basically extremely overpriced. People are not getting their money’s worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there’s this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that’s what everybody’s doing.
It is, to my mind, in some ways worse than the housing bubble. There are a few things that make it worse. One is that when people make a mistake in taking on an education loan, they’re legally much more difficult to get out of than housing loans. With housing, typically they’re non-recourse — you can just walk out of the house. With education, they’re recourse, and they typically survive bankruptcy. If you borrowed money and went to a college where the education didn’t create any value, that is potentially a really big mistake.
There have been a lot of critiques of the finance industry’s having possibly foisted subprime mortgages on unknowing buyers, and a lot of those kinds of arguments are even more powerful when used against college administrators who are probably in some ways engaged in equally misleading advertising. Like housing was, college is advertised as an investment for the future. But in most cases it’s really just consumption, where college is just a four-year party, in the same way that buying a large house with a really big swimming pool, etc., is probably not an investment decision but a consumption decision. It was something about combining the investment decision and the consumption decision that made the housing thing so tricky to get a handle on — and I think that’s also true of the college bubble.
One important difference between the housing bubble and the education bubble is that there was sort of a class aspect to the housing bubble: upper-middle-class people in the U.S. tend to be invested in equities, and middle-class people tend to be invested in housing, so there was a way in which the housing bubble was a way of making fun of the middle class for various sophisticated elites that ran all the way through the housing bubble. It was sort of like, “Look at those dumb people and beatniks in suburban America who are doing this crazy housing thing.” So even though it was a crazy bubble, there was at least a kind of counter-narrative; you had a bit of a dissenting narrative. Education is an upper-middle-class thing, and so something that is not questioned by elites at all, and that’s why the education market is more likely to be distorted.
You know, we’ve looked at the math on this, and I estimate that 70 to 80 percent of the colleges in the U.S. are not generating a positive return on investment. Even at the top universities, it may be positive in some sense — but the counterfactual question is, how well would their students have done had they not gone to college? Are they really just selecting for talented people who would have done well anyway? Or are you actually educating them? That’s the kind of question that isn’t analyzed very carefully. My suspicion is that they’re just good at identifying talented people rather than adding value. So there are a lot of things about it that are very strange.