The One Trillion Reasons To Rethink How Higher Education Funding Works

Last night at dinner I got into a conversation with Greg Gottesman about the trillion dollars of student loans outstanding in the United States. Greg pointed me to this awesome TEDx Talk that he did recently on the topic. I just watched it – if you are interested in higher education in any way it’s worth 12 minutes of your life to watch it right now. I’ll still be here when you finish.

While Amy and I don’t have kids, we’ve funded the college educations for several relatives and the children of several friends. We’re fortunate that we can write these checks as the parents couldn’t have, and in each case the experience has been life changing, with no strings attached, for the young men and women. They went to schools they previously couldn’t have afforded and when they graduated they had no student debt.

When I consider their paths without our support, it would have been harder. Each of them is an amazing young person, but they are able to explore more things, in different ways, because of the education they got. And as I watch them continue to learn and grow, through their work experience, additional education, and online activities, I realize that the chance they had to go to college is still a critical part of the American dream.

I’m interested in this at many levels. My wife Amy is on the board of trustees of Wellesley College and cares passionately about her alma mater, the amazing experience of going to school there, as well as the increasing cost of education. I’m on the CU Boulder Chancellor’s Strategic Advisory Council and one of the major topics we have been discussing is the escalating cost of education and the dramatically decreasing public funding of education. I’m an investor – directly and indirectly – in a number of companies creating new online education systems. I’m a content provider for some of these MOOCs, with some courses coming out over the next twelve months. And I’ve started to take some courses as a way of learning new things while understanding what works – and what doesn’t work – with this new approach.

Up to this point, I’ve been focused on the cost and content side of the equation. Until last night, I didn’t think much about the implication of the student funding side (e.g. debt) of the equation – either the long term macroeconomic effect on society or the short term microeconomic effect on the recent graduate now saddled with student debt.

There are plenty of creative approaches to this, including many experiments underway with schools like MIT and Stanford in conjunction with new companies like Udacity and Coursera. The activity on the course and content side seems vibrant, which has the opportunity to lower overall costs.

But I don’t have a clue about the financing side, and am going to think more about it. If you have any insights, feel free to toss them in the comments or point me at stuff I should read.

  • Marcos Cordero

    Brad, thank you for this post and bringing awareness of the challenges of financing and paying college! We’ve looked at this space a lot and while there is a lot of focus on the “supply” side of education (i.e. disrupting the education offering) and, at the risk of being a bit self serving, I’ve looked at the demand side of financing education. So in addition to bringing more affordable educational offerings, what if we used a crowdfunding model at an EARLY age to help families become aware save for college?

    Not only do children with a college savings account have 7x higher likelihood of going to college than one that doesn’t, but they have more options at doing so.

    Our company ( makes it easy for friends and family to give the gift of college education, starting at an early age, and we all know the power of compounding. What if we expense shifted some of the thousands of dollars in excess toys and put that towards a college savings account? We’ve always said that it takes “a village to raise a child”, and in these times, it’s not just about babysitting. While education needs disruption in many areas, the REALITY is that savings is needed, and with Gradsave we hope to make it easier than ever. Btw, GradSave is completely fee-free.

    Let’s keep working together on this major national challenge – please feel free to connect with me if you’re interested in this space.

    • I like this idea. It has similar characteristics to, which I’m a huge fan of, but with a totally different angle and approach.

    • StevenHB

      I did the analysis to understand what I needed to save to pay for my daughters’ college educations when they were born. Bottom line: it was a laughable number. I didn’t need to know how much I needed to save for tuition – saving the amount recommended was just well out of my reach at the time.

    • Great post Brad, and great talk Greg! The line that graduates who have debt “don’t start companies” is a chilling one, particularly since this debt can last for many years. As the saying goes, “if you think education is expensive, try the alternative.”

      College education is one of the biggest investments a family makes, and I am surprised when people wait until their kids are older to think about it. As Marcos points out, the power of compounding is key. Annie and I started with $50/mo. when our kids were born, into a Janus fund. Over time, as our earnings increased, this eventually got to $250/mo. With 3 kids (and after-tax dollar contributions) this was a significant sacrifice- we didn’t have fancy cars, we had a smaller house than our friends, we didn’t belong to fancy health clubs, go on big vacations, and we didn’t eat out much. In addition, each of the kids got used to saving for college as well, turning over pretty much all they earned in their summer jobs. And they got help from family members. The result? All our kids went to their 1st choice schools and graduated debt free. Amazingly, they even thank us for it from time to time, as they see friends with many fewer options as young adults.

      I know not everyone is as fortunate as we are, but I have been surprised by the number of people I know who are solid middle class or wealthier who are not saving for college, I think in part because they feel that student loans are a good deal, and in part because they’d rather enjoy some luxuries today.

      Related to the main post, I know that many who follow Brad also support the Startup Visa concept, and understand the importance of international students to innovation in our economy. Often, these entrepreneurs start by attending a US university. Very few of these have access to student loans (one of my former mba students sold sold some of his family’s farmland in Uganda to attend our program). If you accept that premise that society’s wealthiest people are not its only smart people, figuring out how to fund high potential people is very important. As Greg’s talk highlights, many economically disadvantaged US students also use loans to pay for college. And recently, some states (like Colorado) have begun to provide in state tuition for undocumented immigrant students, but loans are difficult for this population as well. Services like Gradsave, Prospera, Dreamactivist, Vittana and others also offer ways to fund these students.

  • Paul M

    Marcos, with due respect, you sound like the scouts sitting around with Billy Beane in Moneyball: you’re not solving the problem. You’re not even looking at the problem. The problem is NOT that we need to devote more resources to pay the ever-escalating costs of college. The problem is that the concentration of income since 1980 (roughly the time at which our speaker noted that higher ed costs began to skyrocket) has led to a winner-take-all system of higher education. The Wellesleys of the world (to pick on Amy’s alma mater) can justify their $50k+ annual cost of attendance because the one percenters perceive this as a necessity of life, and frankly they have the cash to cut a check. While schools like Wellesley devote a substantial amount of their budget to aid for students who couldn’t afford attendance regardless of the cost, this does not change the equation for the millions of working and middle class persons who have the skills and drive to succeed there.

    There are perhaps 50-60 schools in this group that have not reached the end of the runway in what persons will devote to attending them because they think they need it. Wellesley could raise their annual cost to $100k tomorrow if they wanted. The rest of higher education is a lot closer to reality. In the next decade or two we will begin to see massive collapse of private colleges (and some public) because of our inability to evolve.

    Solutions: 1. Colleges need to stop massive facilities arms race. 2. MOOCs and other technology harnessed to increase productivity. 3. Direct involvement by business community through co-op programs and other student/business interaction. 4. Stop paying University admin like Alex freakin’ Rodriguez. 5. The NCAA should be blown up (and colleges introduced to the concept of “unrelated business income” when it comes to intercollegiate athletics).

    Frankly I expect to see metaphoric blood spilled before there is any actual change. Once a few schools go belly-up is when I suspect we will finally see reform. I hope I am wrong.

  • Course fees should be directly proportional to earning potential.

  • Betsy Peters

    Like any problem of this size, it is multifaceted. On the consumer side, we are asking 17 year old students to make a $1M decision (1), often with less than 30 minutes of assistance (2).

    Worse, it is very difficult to become an educated consumer of higher education. Students go through a selection and application process before the price of attendance is actually known to them – if they have not chosen wisely, the options are…take out a loan or wait a year. Quality metrics are often difficult to come by and not particularly easy to understand (first year retention? graduation rate? student to faculty ratio? selectivity? Average salary x years after graduation?). We can do better…

    In re: to innovations in student funding, two interesting approaches:
    Raise Labs:
    13th Avenue Funding:

    Getting students access to higher ed w/o sending them into career/life-limiting debt is a critical issue in this country. So glad you are checking out the waters – jump in, the water is both turbulent and murky 😉

    1. Georgetown: incremental earnings w/a degree
    2. The student to guidance counselor ratio in the US is 460:1 (in CA the number is often closer to 800).





    • BRIAN B

      Yes make thing a lot
      Yes make things a lot cheaper for all of us.

    • StevenHB

      People have been talking about 2 for a long, long time. I see MOOCs as a possible solution but given how long it’s been a problem, I have my doubts. Khan Academy, Coursera, etc. seem like they’re a long way off from being competitive with a bachelors degree from an accredited institution.

      That said, this is a pretty forward-looking group and maybe it’s coming in the longer term. EdX and MITx are/were strong moves in that direction.

  • will give you a transparent student loan process. Was a 2009 Excelerate Labs,now TechStarsChicago company (which became that site out and tell every teenager and teacher you know about it.)

    There are several problems with education. All push costs higher. One is a supply/demand problem. Demand for US college education has grown significantly in the US, since economic outcomes are better for kids with a college education, and from international students coming here to study. There has been no corresponding increase in supply-which drives price higher.

    A second problem is that the government has overloaded college education with all kinds of subsidies and incentives increasing demand. Again, no increase in supply and price goes higher.

    A third problem is more pernicious. The fixed cost of running a college has increased significantly. Colleges have taken the extra money and added a lot more staff-increasing salary and pension costs. Many of these employees are government employees on government pensions. At some universities, they haven’t increased professor headcount, but have increased support personnel headcount.

    The answers here are hard. Corporations could change the way they “certify” employees-since they use college degrees as de facto certifications.

    Kids will make economic choices-doing two years at a community college and two at a university. Thinking outside of the box helps. After I left the US Air Force Academy, that’s what I did. I nor my family could afford to send me to college for four years.

    I put one kid through college at Davidson-hyper expensive. She got a good education, and the first two years in a humanities core were amazing. Her last two probably could have been done anywhere; but it is the traditional small school liberal arts experience.

    I have another kid at Ole Miss-and she went there because they have the number one Chinese program in the country. After two years she is fluent in Mandarin. Cost is 17k all in out of state. For many parents, a southern school doesn’t strike them as a good fit.

    There are no easy answers. But until the market accepts new supply, prices will continue to rise.

  • RBC

    Hi Brad, great topic. I’d like to add the idea that not all student debt is equal. Specifically how much of it is for students who graduate, vs students who drop out.

    For profit education groups that don’t graduate their students are doing a huge disservice to their students and society – and if they fall below a certain percentage of graduating students, they shouldn’t be eligible for government subsidies on student loans.

    Macalester College (@sethlevine and my alma matter) President Brian Rosenberg has a great article on HuffPo about the importance of education – The title is Will Dropouts Save America? No. and the money quote is “It remains the case that there is not a single example of a society in this or any other age that has improved its economy or strengthened its civic institutions by educating fewer of its people.”

  • narikannan

    Unless something is done about the extreme costs of college education soon, this country will be committing economic suicide! True, college is not for everyone but it needs to be affordable for the 10% who want it! Just as a product with a price cannot compete 100% effectively with free, costly college education cannot compete effectively with many countries that subsidize it to a greater or lesser extent like Germany, China and India. US has a gold mine of 500 universities giving anybody who is passionate about something to follow it and excel. That’s why this country was successful while others were not that funneled people through a narrow pipe. But making this out of reach from this passionate population is economic suicide! Free market is good but if it is out of reach it is no good!

  • David Miller

    A bubble waiting to burst – great topic Brad.

    How about corporate sponsorships? This can be spun in many different ways. For instance, Pepsi sponsors an individual and pays for their college education. Upon graduation that person must work for Pepsi a minimum of 1 year (with a salary) to repay their debt or maybe they fulfill their debt obligation while in school (again, could be spun many ways).

    The idea is for the individual to get a free education and the company to receive value in return. Companies can contribute to a solution and help significantly reduce the debt problem. As with anything else, the potential for problems exist, but at least Pepsi is helping to create short term opportunities for the individual and longer term opportunities for themselves. Plus, it is a write-off for the company.


    • 1 year seems sort of short. At service academies, it’s 5 years, unless you are a pilot. Corporations lose money if they only get employees for one year.

      • Kelly Smith

        I like the idea of corporations investing in education of future employees (or current, see Twitter U). But the trend I see is moving away from long term employment relationships (see Startup of You). What if it was more transactional? Company works with students as interns/externs on specific projects. Students get experience, networking, mentorship and maybe a job. Companies get access to candidates and free labor. B-schools are doing this now, but much less available for undergrads.

  • narikannan

    Just was reading the latest pivots that MOOC companies like Coursera are doing. They are finding that Universities are their best paying customers for what they call “Class Flipping”. The Universities pay them for creating these videos and professors have the students watch it ahead of time and the class is more like Office Hours and discussion. What if universities did something like “degree flipping” with approaches like these, reduce their own costs and pass the savings on to the students? We need some radically new solutions!

  • Here is some perspective on the scale of student loans in the US:

    Student Loans In The U.S Is More Than China’s Total External Debt

  • Bassem

    Employers have interest:
    They can pay the bill to have a say in the demand side of education. Thus far education is mainly supply driven – universities produce students with some skills not often needed and most often outdate for the job market.

    MOOCs for corporate learning and development:
    MOOCs is allowing mass customization of programs, so be it vertical specializations, interdisciplinary ones, or even job specific education bootcamps. With that insight in mind, we co-founded to help organizations develop their people by building personalized education bootcamps of existing 10,000+ free online courses on Coursera, edX, Udacity, Venture Lab, Code Academy and even iTunes U.

    Next, demand driven education:
    In a way they would be signalling to current students what they as recruiters wish their applicants to learn specific courses being taken now by current employees. At scale, you can imagine a revenue model similar to Google Ads, companies pay to promote certain specializations / courses for new applicants to study before they join the company. Of course there are other ways where companies can pay for students’ education. We’re still exploring.

    Here are a couple of examples of what is possible.
    Haas Entrepreneurship Association:
    eduudle U MBA:

    Thanks for sharing the excitement – it’s indeed a game changer at many levels

    • David Miller


  • via email from a reader – powerful story.

    MOOCs are awesome. Many of my friends who are professors in non-STEM courses fear them, sadly.

    What I think is great is the opportunity to ‘try before you buy’. I like the ability to try out different courses of study, see different professors in action, and get a feel for the level of knowledge I need to bring to the table to be successful in that course of study.

    At-risk students from low income backgrounds (like I was) typically have to maintain the pace of college while holding down a job. That’s not a new thing, plenty of folks have worked their way through college. Keeping pace is getting harder and harder every year, though, and missing just one class or assignment can initiate a downward spiral.

    With MOOCs students can sample the courses, get a feel for the assignments, and assess their skill level before ever showing up. Just watch the lectures one semester, join in for another semester, then go all out and be a rock start the third time around. If at-risk students did this for two years before applying to college, and earned some certificates along the way, then when they show up they’ll be primed and ready. They may even be able to complete the degree a year or two early, saving considerable time and money. Their odds of success will be much higher since they already have a familiarity with the material.

    This is important because not only do disadvantaged students lack funds, they also might not have had the opportunity to get familiar with the material like some of their classmates. In Computer Science many students show up already knowing java, C++, python, HTML, etc.. They are starting with a good base of knowledge and improving from there. That’s a great advantage and allows the pace of the course to advance rapidly. The disadvantaged students may have the native equipment to grok the material, but are starting from a lower level on the learning curve. The MOOCs allow them to level up.

    Companies looking for grads with specific skill sets could sponsor scholarships at various universities. Students who want to avoid taking out loans could complete the MOOC courses, get their certificates, and apply for these scholarships. Since those starting with a higher base of knowledge will be more likely to earn their degree, and since they already have a familiarity with the material, the corporate sponsors will have a great pool from which to recruit new talent. Many companies pay for their employees to earn advanced degrees, this is just reversing the process. They are supporting an at-risk group that has shown aptitude and now have a high probability of success. The Universities receive the funds when they need them, the companies – or their foundations – will have a large positive impact on the lives of at risk students, plus they’ll have a more graduates with the skill-sets they need to remain competitive.

    But paying for college is only part of the equation. Students from low-income backgrounds will now have to contend with managing their finances for the first time out in the real world. This is where there needs to be some serious support. As Greg Gottesman points out, many college grads have too much month at the end of their money. This happened to me when the market softened about eight years or so ago. Those of us in the industry saw a rough patch ahead so we tried to prepare ourselves. Three of us started a cool company, ACT, with a great method for delivering services. We started making good money, one of us got greedy, mismanaged resources, and it went belly up at the exact wrong time. If we had just been able to hang on for another couple months my financial preparations would have been complete and my only debt would have been my mortgage. Instead I lost everything. House, car, business, even my intellectual property. You name it. Gone.

    Undaunted I put my skills to work on the international market and am clawing my way back up. I am enjoying the work, but having that debt hanging over me is not fun. This means I have less time to dedicate to my new startup, I don’t want to bring in partners so creditors don’t try to come after them, and I feel the need to swing for the fences to get a big win and pay everybody back instead of doing what I think is the right thing by growing slowly and smartly.

    So, yes, let’s try to find a way to reduce the costs and find better ways to pay for a college education. But, while we’re at it, let’s provide some support for those who have run the gauntlet and need some pointers on how to stay in the game.

    • can help them manage money. Free app on the web.

  • James Slifierz

    Hey Brad.

    Just partook in this past weekend’s Startup Weekend Toronto EDU edition. My goal was to address this problem with a concept I called ‘Dollars 4 Scholars’. The pitch received amazing support being voted number one overall. We went on to build a great MVP with a great team.

    We wanted to address 3 issues: 1) Student debt is going to have negative impacts on our economy. 2) Scholarships are hard to find; and 3) A large portion of funding goes unclaimed every year. Therefore, we created a system where scholarship recommendations would appear on the exact same screen you viewed your grades. This would be based in real-time on current grades, extracurriculars, and other important information extracted from already available resources. The goal is to efficiently allocate *all* scholarships to the persons who deserve them most and to eliminate the issue of awareness and/or accessibility.

    It’s not a be-all-end-all solution but we think it can create real opportunity. Please check out We have a video on the site of our MVP. All of that was built in 54-hours during the competition. We hope to keep pushing the idea forward. Would appreciate any feedback from Brad or any of those who visit Brad’s blog. Thanks. 🙂

  • PaulC

    I bet somebody has done a good analysis of why education costs have skyrocketed but I have not come across it yet. Where is all the money going? Too many non-essential staff on campus? Too much spending on infrastructure? Professors not earning their keep? I think it is clear that online education will help bring costs down, but my opinion is that the on-campus component of higher education needs to be fixed fast. A significant port of the money is likely going somewhere that it shouldn’t.

    In addition, I think the definition of education is changing. In the past (and it seems less so now) getting a college education has often been about becoming educated and not necessarily about learning a skill or skills. Recently Google wrote that its emphasis on degrees/gpa was misguided and it did not correlate with job performance. I think employers are getting more efficient and realizing that people with college educations (gold plated or not) may be educated, but may not have the real skills that they are seeking. Having a college education does not necessarily correlate with having competitive job skills. Getting a college education should not be all about getting a decent paying job afterward, but with high student debt it is becoming that way.

    • scottwharton

      Prices are going up because of supply and demand. Since parents are relatively price insensitive for the best schools, they keep charging more. Also there have been a number of articles that show the effects of student aid driving the prices up because they effectively provide an education subsidy so that people can pay more (through government aid and debt). Lastly, the costs are very much tied to human labor today. Classes are taught by professors and their salaries are rising with demand.

      The only way pricing will go down will be either until people cannot pay anymore (getting close but still the value of a top education is high) OR competition from newer models. Other pure online or likely a hybrid where human teaching can be supplemented by technology.

  • Landon Gary Young
    • Yup – I’m a huge fan / supporter.

    • I wish they allowed people not in college yet. I have a high IQ hardworking family member who had to leave college due to financial issues but I dont think she is eligible.

  • Anthony Pompliano

    While MOOCs have obviously made headway to change the thoughts around higher education, there are a few companies that seem to be worried about how to improve the quality (and value) of the education once an individual pays. My personal favorite is

    I am slightly bias because I know the founders, but these guys are hell-bent on increasing the quality of education by changing the way course content is created. Financing is a problem and it appears it will continue to be one for the next few years. A partial (and I definitely mean partial) solution is to make the investment have a larger payoff. If, in the future, the value of higher education is increased, but the price decreases, the ultimate potential could be grossly underestimated currently.

  • RealityEngineer

    The best site for this topic is the Center for College Affordability:

    They are a think tank on the topic dealing with research, for example looking into how subsidies impact prices. By analogy, imagine the government offered vouchers to everyone for “green” lightbulbs for up to $50 each. Obviously allbulbs would get marked up to $50.Good starting points:
    “A Tuition Bubble? Lessons from the Housing Bubble
    l. If the suppliers do not expand production, the end result is an increase in price, with the suppliers capturing the entire subsidy and the consumer still paying the same amount (or more, if he is not lucky enough to get a subsidy). When it comes to higher education, there is reason to believe that an expansion of production is unlikely to occur. In a new National Bureau of Economic Research paper”
    “Financial Aid in Theory and Practice..
    One interesting factoid is that net tuition (the price students pay – sticker price minus grant aid) is actually higher when state appropriations per student are higher. In fact, every dollar of state appropriations is associated with a net tuition 77 cents higher. …”

    They address issues of quality and changes over time, e.g.:
    ” Average total time on all academic work amounts to about 27 hours a week, the story says. […]
    And, as the story notes, it wasn’t always that way. In the Dark Ages of 1961 (when this writer was an undergraduate), students typically spent about 40 hours weekly on their studies—more or less the same work week of adult workers.”

    Some useful blog entries on that site regarding the issue of who should benefit from college

    since of course many won’t and realize that and drop out:
    ” Less than half of U.S. college students graduate, the National Center for Education Statistics reported last year.”
    “Why the Education Bubble Will Be Worse Than the Housing Bubble ..
    Students don’t have either of these options. It’s illegal to absolve student loan debt through bankruptcy, and you can’t sell back an education.”
    “By enabling more and more people to bid for a college education, the government has promoted inflation of college costs — some 440% during the past quarter-century, quadruple the overall rate of inflation. Vance H. Fried, author of Better/Cheaper College, reported that nonprofit colleges make huge profits on undergraduate education,”
    “After two years in college, 45% of students showed no significant gains in learning; after four years, 36% showed little change.

    Students also spent 50% less time studying compared with students a few decades ago, the research shows.

    “These are really kind of shocking, disturbing numbers,” says New York University professor Richard Arum, lead author of the book, published by the University of Chicago Press.”
    “What students are getting is four or five years of country club living,” said Richard Vedder, an Ohio University researcher who studies the economics of higher education.”

    “Consider those offered in Europe. In Germany, 97 percent of students graduate from high school, but only a third of these students go on to college. In the United States, we graduate fewer students from high school, but nearly two-thirds of those we graduate go to college. So are German students poorly educated? Not at all.

    Instead of college, German students enter training and apprenticeship programs—many of which begin during high school. By the time they finish, they have had a far better practical education than most American students—equivalent to an American technical degree—and, as a result, they have an easier time entering the work force. Similarly, in Austria, Denmark, Finland, the Netherlands, Norway, and Switzerland, between 40 to 70 percent of students opt for an educational program that combines classroom and workplace learning.”

    Another useful site is “Minding the Campus”:
    “That brings me to Jackson Toby’s The Lowering of Higher Education in America: Why Financial Aid Should Be Based on Student Performance (Santa Barbara, CA: Praeger, 2010) which augments Murray’s insights in two important ways. First, the federal financial aid system deserves much of the blame for the current disconnect between labor market realities and the supply of new college graduates. The fact that a Pell Grant recipient with a 2.1 grade point average studying physical education for five years gets the same aid and sometimes more as a 3.9 point GPA physics, engineering or economics student who finishes in four years has caused a disaster, augmenting such modern problems as grade inflation. ”
    “According to Philip Babcock and Mindy Marks, college students’ weekly study time fell by 40% between 1961 and 2003. The research is forthcoming in the Review of Economics and Statistics, but here’s a very readable popularization. Their basic findings:”
    “The average college graduate recoups that investment within 13 years. The next 30-plus years of increased earnings are pure profit…But here’s the rub: The return from a college education varies widely, from more than $2 million for engineering and economics to $250,000 for elementary education and social work degrees. In other words, what’s more important than choosing the “right” college is choosing the right major.”
    “Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy, then the global one, increased only fifty points above the Consumer Price Index during those years…

    ‘In your other three classes, however, you are likely to be taught by someone who has started a degree but not finished it; was hired by a manager, not professional peers; may never publish in the field she is teaching; got into the pool of persons being considered for the job because she was willing to work for wages around the official poverty line (often under the delusion that she could ‘work her way into’ a tenurable position); and does not plan to be working at your institution three years from now.’

    This is not an improvement; fewer than forty years ago, when the explosive growth in tuition began, these proportions were reversed.”
    “or what a 2002 Cato report called “human capital contracts.” Basically, borrowers would repay lenders by giving them an agreed-upon percentage of their future income, and all government would do is enforce the contracts. That would enable borrowers to avoid the big problem of having a set amount due often before they have the ability to repay, and it would greatly increase the efficiency of college financing, with lenders likely to be quite discerning about who really would benefit from college.”
    “The College Graduate as Collateral”
    “Even at their very brief peak in 2007-08, private student loans constituted only 12.5 percent of total student aid. In 2011-12 they were just 2.6 percent. The vast majority of funds have always come from other sources, first and foremost the federal government. Yes, it is primarily “aid” from Washington that lets colleges raise their prices with impunity, and enables students to take on substantial debt for often less-than-substantial studies.”
    “”Table 1. Revenue components as percentages of college revenues between 1978 and 2007 (National Center for Education Statistics, degree-granting institutions).”
    “Why does college cost so much?”

  • Here’s a fun fact I just heard from a friend.

    Approximately $300 billion of the loans were made to students who never graduated.

    What’s their incentive to pay these loans off?

    • StevenHB

      The lender will garnish their wages in perpetuity, I assume, if necessary. These loans aren’t discharged by bankruptcy.

    • Kathy Gallup Keating

      Many of the for-profit colleges have indictments pending against them. They enroll students who would not otherwise go to college into the program by doing all the student loan paperwork for them. They offer these students career counselors, tutors, etc. The students get the loan, start the classes and everything goes well for the first several weeks (classes are easy, the counselors help them tremendously).

      Then the date passes after which the loan money can be retained legally by the school (I think it’s 8-9 weeks into the term). After that date the for-profit schools drop all support for the student and the student is on their own which means there is a high likelihood that they will drop out. Since it’s after the legal boundary for which the school gets to keep the funds, the school profits and the student is left with the bill that they cannot pay.

      It’s not just a few schools; It’s an industry-wide problem. At the end of the day, stories like this show that you cannot always trust corporations to be good corporate citizens. Until we can get past first making education accessible to people, I’m not sure how we’ll ever be able to move beyond that.

      I don’t know the answer. But I know that what we have now is not it.

      • StevenHB

        I think that the for-profit schools are widely problematic. Even for students who graduate, it’s my understanding that their post-graduation placement rates are considerably lower than the non-profits and I wonder about the average starting salaries of their graduates.

  • Jo-Ann Beserra

    Another key perspective that hasn’t been mentioned and should be considered is selecting the right college to attend based on the student’s financial profile in addition to the academic and social profile and desires. Debt can be minimized by attending a school that provides the best match for both merit and need based financial aid. This requires an understanding of how financial aid works.

    Colleges are now required to provide a net price calculator on their website, which is one input that can be used, but not always an accurate one. Other helpful websites include and This is also one of the key focus area of our new product at Let’s alleviate this issue from the source – minimize the debt and keep the education.

  • StevenHB

    As a parent in year four of eight continuous years of undergrad tuition, I’d sure love to see some changes.

    An economist friend maintains that universities will keep the cost of undergrad tuition at the level at which middle-class parents like me can just barely afford to pay for it after all government subsidies, loans, etc. are applied. I think that he has a point. We, myself certainly included, all believe that a college education is the key to a successful life in the US.

  • LD Eakman

    I think you know that we’ve been investing behind this theme since January 2010. It’s no coincident that my first child came along then, causing me to examine these trends personally. I still don’t know what college looks like in 2028 but I can guarantee her experience will be greatly changed.
    One important facet for me is to begin thinking of “learning” rather than “education”. We can provide great learning opportunities for people globally via these new distribution models. There are tremendous benefits once you shift from a “time in a seat” model to a self-paced learning model. A great many companies are working on interesting ways to share knowledge. Providing validation and signalling (to the community/employers) is one interesting investment thesis.
    A question I struggle with is how to replicate the social learning that occurs at traditional colleges. So much of life success is your ability to catch social cues. I worry that my daughters generation will be lacking in direct social interactions. I suppose it might not matter if the robots are in charge.

  • greggottesman

    Wow, some great comments below. Thanks for highlighting the topic, Brad!

    I am curious what people think about new hybrid university concepts like Is there an opportunity for new entrants that don’t have legacy infrastructure and branding?

    • Kelly Smith

      I have been thinking a lot about this as well Greg. Glad you brought it up. My view on Minerva is that targeting Ivy League is a mistake. Like if Honda had decided to design a Cadillac killer in the late 1970’s.

      Here’s an alternative take on the disruptive model, similar to what Ben is thinking but instead shooting for the “low end” of the market. University 2.0 is better than current low-cost options in terms of quality of learning (MOOCs), value of degree (remote options like Georgia Tech CS Masters), quality of experience (shared physical space, collaboration and mentoring), and career options.

      I’d love feedback from this group:

  • greggottesman

    Even though it would be politically difficult, one potential solution (maybe the most obvious one) would be to make student loans extinguishable in bankruptcy like every other kind of loan. That would force lenders to be more discerning about how much they are lending and to whom, students to be more conscious of their debt burden and the type of education that makes sense in light of that debt, and colleges to keep costs under control so their offering is affordable without significant loans. The downside of this approach is that fewer students could access traditional higher education and many colleges would go out of business faster. And thats’s bad. But is that downside worse than graduating another generation of students with $25K, $50K, $100K or (in the case of one graduate I talked to who had college and dental school loans) $550K in student loans?

    • Betsy Peters

      Agreed. This could be a huge step toward curbing the growth of student debt.

      Greg, great speech – thank you. I loved how you articulated the cultural view most consumers of higher ed still buy into as they determine which colleges to apply to – “get into the best school you can and worry about paying for it later”. Many parents (and practitioners in this space) who are being honest will tell you that adopting a pragmatic approach to selecting a college with finances in mind feels like “betting against my child”. It cuts against the very grain of the American dream.

      The way prices are revealed in the admission process contributes to the perpetuation of this paradigm.

      Currently, as we research colleges we accept that the astronomical sticker prices of colleges (which greatly outstrip the $5,000 most American families have in savings for college) will not apply to us. The assumption most families are encouraged to make is that the real price will be far more reasonable based on grants from either the college and or the government. The problem is, most families get “gapped” and the gap is much larger than anticipated.

      The expected financial contribution based on the FAFSA does not cover the price after grants are subtracted (or worse, it is not clear what is a grant and what is a loan). By the time a family realizes they’ve been gapped…they are in deep emotionally and, running out of time in the admission process.

      Two basic changes could rectify this information asymmetry and help make the selection, application and financial aid process more consumer friendly:

      1) Allow financial aid eligibility to be determined based on two-year old tax data vs. year-old tax data. While this may seem like a dry process step – it would allow families to get a better sense of their gap PRIOR to submitting an application. (Adjustments would be necessary for some families, but studies have shown that the impact on Pell grantees, etc to be minor:

      This seems like a job for the DOE.

      2) Improve the usability of the net cost calculator concept. Net cost calculators are not widely used yet as you must enter the data for each school you are interested in to understand your gap (again based on year old tax data). If a family could enter academic + financial data once ( style) to see their chances of getting in along with their net cost at each of the 4,000+ colleges in the US it could force trade offs earlier in the process.

      Enterprise is getting involved here ( and my company – but the government has the ability to connect these dots as well.

    • I totally agree. This would be a positive step. It is nothing short of bizarre that you can’t.

      Another thing that is scandalous is the interest notes that are charged. Anyone who has investments knows that to get 6.8% right now is hard. And yet we load up loans on these kids at this rate, It’s unbelievable.

      • 6.8% is hard to get? Depends what the risk is. Students have no income history, no assets and high debt loads. A high interest rate seems quite sensible.

        • Precisely. It isn’t hard to make an investment that has a chance of making 6.8% if you are prepared to swallow enough risk. BUT – if you talk to a wealth management company and want to know their expected return on a properly managed diversified portfolio before the crash it was 7% and is now around 4-5%.

          There are a lot of people with millions who would love to be getting 6.8% right now.

          • I don’t think investing your money in student loans only is a properly managed diversified strategy.

          • Of course it isn’t.
            I’m just pointing out that 6.8% is a freakishly high return for debt you can’t discharge.

  • Doug

    A college has no reason to keep tuition low. They get paid no matter what. It would be better if there were some way to put their profits at risk. Yes, profits, even for a state run or not for profit business, they are paying themselves.
    Others have commented on for profit schools. Even the big schools are in on the scam. Make tuition high, get the student to take a loan, provide the least service for the money and leave the tax payer with the bill for a defaulted loan. Changing things in the future is a great idea. What do you do with a trillion in debt that maybe 60% will get paid off?
    Yes the university system is ripe for disruption. The idea that appeals most to me is being able to take tests, or some other way to prove you really “know” something. Not just that you have take a class, but “know”. There is a place for a certification service online. Sort of like reputation in Stack Overflow, or a Cisco certificate (not worth what it once was).
    I can see the day when anything but an MIT degree will be a resume killer. A 22 yr old with multiple online certs and job experience will be seen as the better tech hire over a 4 year CS degree. “Oh, you got to party for four years I see”, says the hiring manager. The stigma of the self educated programmer will be gone, not just for programmers either.

    One more data point. All this talk about Uacity and Udemy is fine, but, I spoke to a person doing Word Press training videos. To put up Word Press, get the plugins and setup your very own site is about $500. Add $30 per month for hosting and a video service and you can be up and running your own online academy of . That will be a huge disruption to the industry, and to the platform players in education. If you are investing, there has to be better secret sauce than the lectures.

  • Brad – I couldn’t agree more about the importance of this topic. The guys absolutely nailed the problem. And I hope people didn’t miss that horrid truth that you can’t discharge student loans in bankruptcy! It is a massive massive problem.

  • It’s important to realize that the price of a degree is part of the degree’s value. Your degree will really only be useful to you if you are also competent as an employee. If you are lazy, stupid or otherwise an undesirable employee, having a degree won’t help you very much. As such, the price of the degree is a useful signal for employers: “Look at how much I spent on this piece of paper which is worthless if I am a bad employee. Surely, I must be a good employee.”

    Think of it like an engagement ring or an expensive wedding. An expensive wedding is stupid if you don’t plan on sticking around. So it’s a way to demonstrate your commitment.

  • bradbernthal

    We’re going to find out a lot about the substantive value of higher ed learning in the coming years. One driver of the relative price inelasticity for university tuition is that a university degree has been the dominant proxy across most industries for job qualifications. That is increasingly fading as employers find other scalable means to collect data, test, filter and otherwise vet qualified candidates outside of (or in addition to) formal degrees.

    At the same time, if universities fall into financial difficulties in the coming decade, as I’m concerned they will, I think we’re going to look wistfully upon them the way we look upon journalism today — e.g., “Geesh. Imperfect and inefficient institution. But a hugely valuable social function. Best source of objectivity, deep thinking, and intellectual risk we have. Wish we could save it. Just can’t figure out how to do it.”

    Those of us at universities also have a responsibility to figure this out, too. My take is that outreach functions that translate core university competencies into external impact must be part of getting regional communities and states to see the long term collective value of having a strong institution in the area. Tuition dollars will shrink as MOOCs and blended learning proliferate. So public research universities are going to need going to need to lean on their core unique competency – moving the boundaries of knowledge – in a way that has external impact and justifies collective public support for the enterprise.

  • Sid Rupani

    Important issue. Great presentation.
    One important point – not all college debt is the same. For some majors from some universities, students are perfectly justified in taking on debt, because they have a very high chance of paying it off later. For less-employable majors from mid- or lower-tier universities, this may not be the case. As Greg pointed out, it’s important for parents + students to gauge this for themselves when making their education decisions. Right now, they don’t have the information to do it. A “Consumer Reports” (by major by university) showing median graduate wage out of college, median wage after 10-years, tuition, estimate payback time etc. in an intuitive and understandable format, would go a long way in enabling them to make better decisions. How can we provide such a service – does government need to mandate it, can a start-up do it, or do universities have any incentive to do it accurately themselves?


    Hmm… I had to repost this one. It showed up at first but then was not here when I refreshed.
    Funding isn’t the problem, Brad, the cost is the problem. I, as usual for most things, see education different from others. Children should be schooled at home until driving age. This would allow the parents to instill good values in a child before they enter society. All educational materials can be delivered via the internet. Including teaching materials for the parents.
    There are various pros and cons for this approach. Many children have terrible home lives but that’s not an issue for the school system to deal with. That’s a child services issue. Some schools are terrible places and keeping children at home until they develop morals and proper decision making skills would help prevent drug and alcohol problems.
    Then there is the whole knowledge worker age – life long education opportunity. A system for education that is based around electronic information delivery instead of bricks and mortor could bring knowledge to people well past retirement age. Of course electonic delivery would mostly be focused on the science of topics instead of practice. Learning to use expensive equipment and other hands-on skills may require people to attend classes at a facility.
    It is imperative for taking advantage of this new electronic opportunity that we use a single meta-education design approach. We cannot let everyone everywhere go in all directions. Instead we need everyone to pull together under a single all encompassing methodology.
    I’ve posted about this many times before on the internet. Always there are teachers who become fearful for their jobs and want to fight the cyber approach. Are you planning on changing the world or just thinking outloud.

  • Chris Westfall

    Hi Brad. We don’t know each other but have a few common friends/acquaintances in the Boulder area. Here are my two cents on this one: Course delivery certainly is an area with lots of change happening and promise for improving accessibility for students at reduced cost… but the other major element of higher ed business models, at least in many cases, is not only the distribution of knowledge, but the creation of knowledge (aka the research mission of higher ed). Like student tuition, research is funded by similar sources to an extent–government and corporations, but not so much student tuition. Innovating course delivery (that serves the knowledge distribution mission) is one way to improve cost/value; but alternatively, the way that IP rights are managed in association with research (serving the knowledge creation mission), could also solve some of the cost problem by creating more income for institutions. Licensing IP in a systematic way, not as a cottage industry that’s handled in very inconsistent ways, may be yet another way to add revenue to an institution, off-setting cost to students. Tech transfer and licensing may be an area where we can innovate the higher ed business model to make it more affordable.

  • batnib

    I sit on the board of Barnard College (another seven sister), and would like to engage in this conversation with you as well. Please continue to share whatever insights you come up with. It might be interesting to put together some sort of broader study group, because I think there are a lot of us out there, supporters of education, enthusiasts for ed tech as a potential solution, etc., who are worried about this particular issue, and what it means on micro and macro bases for society.

  • Kelly Smith

    Thanks for the post Brad. Great conversation below. Sounds like ~2/3 agree that the value prop is the bigger issue than the financing (although there are certainly tweaks that could help there).

    As in other industries ready for disruption, I expect the changes to come from new entrants rather than the incumbents. (College Presidents are too busy worrying about football teams anyway, right?)

    Your post convinced me to get down on paper (err, pixels) a strawman I have been tinkering with for a while now. I call it University 2.0 and the goal is to provide the benefits of college (more than just a degree) for a fraction of the cost.

    I’d love the input of this group:

  • Vance Fried

    I’ve written some papers on the financing side that you may find of interest. “Federal Higher Education Policy and the Profitable Non-Profits” (Cato Institute) discusses the “why” of high college costs and the current financing system. “College 2020” (Heritage Foundation) overviews the new model of higher education, its cost, and financing implications.

  • KJ

    Nobody has mentioned the psychological impact of higher education on the middle and lower class.

    Parents think they are failures if their children don’t go to college.

    Hence, parents pressure their children to go to college…even if they are not a good fit, or are unsure about it….Even if it means mortgaging your future at such a young age, with no real concept of the consequences.

    Parents don’t want to be social outcasts when all their peers are taking about what school Sally and Jimmy just got into. They don’t want their friends to know they were unable to save enough to fund all their kids’ unreasonably expensive education.

    Higher education influences society’s values and beliefs…so much so that if you don’t go to college your an outcast, a fool, a loser. You’re damned right out of high school, and you’re only 17 or 18.

    The effect on the middle and lower classes is substantial. It is, in practice, a transfer of wealth from the lower and middle classes to the upper class (the universities and all their stakeholders, the banks and their stockholders)….And with very little return on that investment for the student and their family.

    Universities inflate the cost of education at an unreasonable rate, while gov’t backs the banks. This makes it a save investment for lenders, with a attractive and almost guaranteed return. Massive value accrues to lenders and schools. Massive value is seldom returned.

    I was thrown for a loop when I graduated from college and came home to find many of my friends who didn’t attend college making twice as much in the trades as I could demand with my degree in economics….and they were debt free, and they’d saved enough money in 4 years to purchase a home.

  • From my wife’s experience, I can tell you the impact is huge. One of my first life dinner gifts for Sarah after we got married was to erase $100K in student loan debts she had accumulated from Undergrad and Grad school. 9 months later, she’s just now acclimating to the fact that she’s debt free. It was a huge stressor in her life and a constant source of stress. Now, the future is limitless for her and it has freed her up to really explore her talents to the fullest.

  • kywmst

    So much one could address here but I’ll just throw out a couple reactions. I think the speaker misses the big picture. Further, I do think the “Financing” issue is the big problem.

    “…$150 billion in private loans which make up a significant % of those with large loan balances…” With ~$1 trillion total loans outstanding and the Federal Government have effectively taken over the student loan market, Greg speaks as if the (now virtually nonexistent) private student loan market is the problem. When in fact the real problem is just like the housing market bubble — poor Government policies providing easy money (which anyone with rudimentary understanding of economics knows leads to an increase in prices) and more broadly a distortion allocation of economic capital.

    Capping repayment to amount of income or providing loan forgiveness (which the Government does) merely socializes the costs back onto the greater public.

    I believe that online degrees, etc. are in one sense merely rational reactions, intended to lower costs, to the perverse incentives created by these Government policies.