How Higher Education has Failed a Generation of Americans and What Startup Founders Can Do About It.

The American higher education system is facing a crisis of rising costs, crippling student debt, questionable quality, over-politicization, and poor job prospects. As confidence diminishes, this crisis presents new opportunities for startups and entrepreneurs to offer innovative alternatives.

American higher education, once the gold standard worldwide and a symbol of excellence, probity, and integrity, is now on the brink of irrelevance. Almost every day, new headlines highlight its downfall, and this sentiment is widely shared among the public.

According to a Gallup poll, Americans’ confidence in higher education has plummeted to 36%, a stark drop from 57% in 2015. This significant decline highlights growing public skepticism over the past several years.

Many reasons explain this decline:

The rising cost of higher education: The cost of college tuition has been increasing faster than inflation for several decades. In the 2022–2023 academic year, average annual tuition and fees for a private four-year college were approximately $38,070, with some colleges nearing $100,000 annually! Mismanagement and escalating administrative costs are significant contributors to this surge, raising questions about the return on investment for students. Since 1963, the cost of a college degree has grown a staggering 748% after adjusting for inflation, and public four-year institutions have seen a 23-fold increase in tuition alone. MBA programs follow a similar trend, with prestigious programs often exceeding $200,000 in total tuition.

The weight of student debt: The student debt crisis in America is staggering, with $1.6 trillion in outstanding federal student loan debt as of Q1 2023 and an additional $128.77 billion in private student loan debt as of March 31, 2023. This immense burden weighs heavily on individual borrowers and drags down the overall economy. Heavily indebted borrowers often delay major life milestones such as marriage, having children, and buying homes, significantly impacting consumer spending and economic growth. This delay contributes to a lower birth rate in America. It discourages entrepreneurship, highlighting a stark reality that many startup entrepreneurs come predominantly from wealthy families, which dents the American dream. Even more perverse, since these debts don’t disappear when declaring bankruptcy, some individuals see their Social Security benefits garnished to repay their student loans, exacerbating the financial strain on older Americans.

The quality of education in question: The quality of education in American universities is increasingly under scrutiny. A recent WSJ report highlights significant grade inflation that began at the start of the pandemic. This troubling trend is often attributed to “equitable grading” policies, such as prohibiting penalties for late work, setting minimum grades of 50%, and allowing test retakes. This grade inflation undermines the value of degrees, making it harder for employers to distinguish between competent and less capable graduates. The issue is further exacerbated by the high cost of higher education, which pressures institutions to “reward” all students, regardless of merit. For instance, a chemistry professor at NYU was recently fired for maintaining high standards, reflecting the systemic problem.

Moreover, many universities have dropped standardized test requirements, raising concerns about admissions criteria. Even as prestigious institutions like Harvard reconsider these policies, doubts persist about who is being admitted and why. Universities also struggle with outdated operational models, clinging to four-year degrees and two-year MBA programs, despite most top MBA programs globally now lasting less than a year. This lack of flexibility and adaptation to modern educational needs further questions the quality and relevance of American higher education.

The over-politicization of campuses: One of the most pressing issues facing American universities today is the rise of political extremism on campuses. This increasing polarization creates a hostile environment for students and faculty alike, threatening academic freedom and eroding trust in educational institutions. Recent campus lockdowns, such as the one at Columbia University caused by extremist protesters, exemplify this troubling trend. Additionally, incidents like a guest federal judge being attacked by students and an administrator at the Stanford Law School due to his political affiliation further highlight the growing intolerance. More recently, University presidents’ inability to condemn antisemitism on campuses only exacerbates the situation, leaving many to question the integrity and mission of these institutions.

The lack of job prospect: More than half of college graduates end up in jobs that don’t require a degree, often trapping them in low-paying fields. Starting in such positions makes it difficult to escape these roles. This trend raises skepticism about the value of a college degree, as many graduates find themselves in jobs like retail or hospitality. Additionally, the HEA Group revealed that 25% of college attendees earn less than $32,000 annually a decade after starting college. Not all majors and schools are created equal, but these figures should be a wake-up call for the country.

And the business world is noticing:

Major companies are increasingly dropping college degree requirements in response to persistent labor shortages and realizing that degrees do not always indicate job competence. For example, IBM coined the term “new collar” to describe roles prioritizing skills over degrees and has stripped degree requirements for more than half of its US openings. Similarly, Accenture, Dell, and Google have reduced educational requirements for many positions, focusing on skills and potential instead. Even tech giants like Tesla and Apple have publicly questioned the necessity of degrees, with Elon Musk criticizing MBA graduates for lacking practical knowledge. Meanwhile, Palantir has launched an initiative to provide opportunities for students facing antisemitism on campuses, reflecting a growing disillusionment with traditional educational institutions. This shift signifies a broader trend where practical skills and relevant experience are becoming more valued than traditional academic credentials in the job market.

In this context, students are increasingly leaving traditional universities to join the workforce immediately or explore new institutions like Joe Lonsdale’s University of Austin. Others are pursuing alternatives such as the Thiel Fellowship, founded by Peter Thiel in 2010, which awards $100,000 to young entrepreneurs dropping out of college to focus on innovative projects and startups. Vocational schools are also experiencing a resurgence in popularity, and a growing number of students are embracing online learning, such as the “No Pay MBA,” where they build their own online curriculum instead of attending traditional MBA programs.

But despite these shortcomings, universities still stand.

With all these crises threatening higher education, it is reasonable to wonder why universities continue to exist and why students still choose to enroll. The answer lies primarily in the value of degrees.

Today, universities serve less to transmit knowledge — given the abundance of online learning resources — and more to signal an individual’s capabilities to potential employers. Specifically, a degree signals two critical attributes to employers:

• Intelligence: Due to legal restrictions on intelligence testing in hiring processes, American companies are not allowed to test the intelligence of future employees, so they delegate this task to universities which are allowed to conduct such tests (e.g., GMAT or SAT).
• Professionalism: Statistics show that students who complete 100% of a program earn 50% more than those who only complete 90%. This difference is not necessarily due to the increased value of the last 10% of a program; instead, completing a degree signals traits such as work ethic and professional conscientiousness to employers.

Therefore, students have limited alternatives:

• Traditional higher education: While traditional universities offer degrees that signal intelligence and professionalism, they have become less reliable, more expensive, politicized, and disconnected from the job market.
• Online learning: Online solutions offer access to knowledge but lack recognition in the job market, making it difficult for students to signal their capabilities effectively.

In this landscape, universities’ persistent relevance stems from their role as certification institutions, even as the educational landscape rapidly evolves around them.

This is a massive opportunity.

Between “YouTube University,” which offers no credentials, and spending half a million dollars on a dubious degree, new solutions are needed.

The higher education market is vast, with over 19 million students enrolled in degree-granting institutions in the United States alone. The global market is expected to surpass $3 trillion in revenue by 2025, with $600 billion coming from the United States.

The EdTech market, which intersects higher education and new technologies, is also experiencing rapid expansion. Its global value is expected to exceed $250 billion by 2025, with more than $50 billion in the United States alone.

MBAs and executive education programs remain lucrative, with global demand for business education expected to stay robust. The international MBA market was valued at approximately $70 billion in 2020, with the United States accounting for half of that figure.

This immense and evolving market landscape presents a substantial opportunity for the private sector. The sheer scale and potential for innovation within higher education make it an ideal arena for startups to lead transformative change. Startups, with their innovative capabilities and swift adaptability, are ideally suited to lead this revolution in higher education. In contrast, traditional non-profits have demonstrated that they are unable or unwilling to change. Aaron Rasmussen’s experience, as co-founder of Masterclass and Outlier, a for-profit online school granting transferable college credits, illustrates this potential. When creating Outlier, he initially tried to form a foundation but found the process too slow, inflexible, and expensive as a non-profit. Therefore, the private sector should be at the forefront of this change, driving improvements and making American higher education a force for good