Wednesday, June 11, 2014

The Future of Higher Education

While we usually profile companies, industries or people who are conducting business boldly and not buffeted by fear - I wanted to provide an example of an industry that is driving itself into extinction.  It exhibits many of the characteristics of fearful companies and organizations such as losing their sense of identity, chasing the competition and getting stuck in a business model that not only lacks a moat but is increasingly failing.

U of M's North Quad

I am re-posting a series of posts in its entirety that I previously wrote for the Epipheo Underground blog a few months ago.  I am motivated to do this because of a couple of new events this past week that only serve to reinforce my original premise - that higher education as we know it is dying and will look dramatically different within 10 - 15 years.

Those events include:
For those unfamiliar with the "Pay As You Earn" program, it offers loan forgiveness and capped monthly payments to graduates based on their actual earnings over the life of the loan.  While the program may be a well-meaning attempt to mute the impact of a swelling $1 Trillion student loan debt load, according to the article linked above, it could have unintended consequences:
Beth Akers, a fellow in the Brookings Institution's Brown Center on Education Policy, says the move could also unintentionally push college tuition prices higher. “The income piece is a necessary safety net for borrowers. It gives security to not be afraid to take on debt to go to college, but the forgiveness part isn’t always necessary. It induces people to borrow more than they need to, which can have a negative impact on college prices.”
With these two current events as the backdrop, I present to you the original post originally published on the Epipheo Underground on March 10, 2014:

I have three kids ages six and under, and I am not saving for college.
Sounds irresponsible doesn’t it? Probably sounds even more irresponsible considering that I have an undergraduate business degree, an MBA in Finance, and currently lead the Finance/Accounting team at Epipheo.

What if I also told you that I am not pushing my children into some type of AAU sports program in the hopes of driving them to an athletic scholarship? You might still call me crazy. But, before you stop reading, I have a logical and possibly even sane rationale for these financial choices.

The primary reason is that the return on a college education — for most people — stinks. In fact I might even say that it is fast becoming one of the worst investments you can make. I would even argue that, by the time my children are old enough to graduate college, it could be a worse investment than buying a brand new automobile — and we all know that you lose 40% of that investment as soon as you drive it off the lot.

You might be asking why someone who has two degrees from traditional Higher Ed and who has benefited greatly from traditional Higher Ed would be so down on the entire concept. It turns out I can list a few reasons. But, before I go there, let me talk about traditional Higher Ed’s good things.
First, the sense of community. The byproducts of college life — such as the lasting relationships built and experiences of being “on your own” and learning that freedom actually comes with a lot of responsibility — are possibly the most formative and beneficial experiences any adult can have. Those experiences provide a level of self-confidence and learning that is hard to create in most other settings. I will come back to this concept later, but for now let’s simply say that I value these experiences very highly.

Beyond the college experience, another value that a traditional Higher Ed experience brings is a diploma that represents an endorsement of having the baseline level of knowledge that most employers need to know they can expect as a starting point.

Lastly, in a few rare examples (Harvard, Yale, and a handful of other Ivy League-type schools) the overall quality of the student body provides a network that opens doors and provides lifelong opportunities. These schools have a disproportionate share of U.S. Presidents, other government officials, CEOs, and leaders of important organizations. This is extremely rare, though, and is not a benefit in 99.9% of colleges and universities.

People may ask, “What about the value of increased learning and knowledge?” To that I would suggest that learning is first a state of mind that a classroom setting can then enhance. Given the current access to information resources through the internet and the instant access we have to experts through social media, the more important thing is cultivating a love for learning long before the college years.

Alumni associations like to roll out numbers each year with important rankings and average ACT/SAT scores as validation of their annual five-figure tuition bills. We as graduates also use those numbers to convince ourselves that we made the right choices all those years ago and even gain some sort of weird sycophantic pleasure in having a higher number than our friends’ or family members’ college or university as if somehow that actually matters.

These are all lies that prop up a failing system that consumes ever more public and private funds to build newer dorms with the latest entertainment and technology to make our 18–24 year olds feel discontent with real life when they graduate. What happened to the John Belushi College Experience that crammed us into small spaces and forced us to learn how to build truly lasting relationships instead of hiding behind social media? Heck, I would argue that most college students living on campus now live a better lifestyle than 80% of Americans.

Example college dorm pictured in the linked CNN article
The net impact of all the spending is that the moderate cost of a four-year college degree is close to $100,000 for an in-state public college and nearly $200,000 for a moderate budget at a private college (according to the College Board for the 2013-2014 academic year). Estimates for 2025 have those numbers rising to $165,000 for in-state public and $325,000 for private. The experts’ solution to this massive cost inflation — “Save early and often.” — sure sounds like a cop-out. That message is even more of a cop-out when you consider that their investment options (such as 529 plans) lock you into using those savings for very specific purposes, can hurt your child’s options for financial aid, and have limited investment options with typically crappy returns. Not to mention pricing out a full 20% of Americans from the opportunity.

Before going too far down that line of discussion, I also must present the flip side of the investment equation, which can be increased average wage rates. For example, the average annual salary for a typical American without any college is approximately $30,000 compared to $44,000 annually for a college graduate. Before diving into that discrepancy, I want to make a quick distinction on those numbers. The $14,000 difference between those numbers isn’t because of the degree. Rather, it is because of the skill set that those graduates bring to the table in relation to the jobs they are performing for their employer. I will return to this distinction later when we talk about alternatives.

A simple analysis of the return on that investment would be to take the $14,000/year and compare it to the cost of education as indicated previously. But the problem with that analysis is that it doesn’t account for the financing of that education. When you factor the same $100,000 for a moderate in-state public university over 20 years at 6.8% interest (a fair unsubsidized rate at the time of this writing), you get a future value of $372,000. At $14,000/year, it would take 26.5 years to make that investment back. It becomes even more daunting for the 2025 analysis as the $165,000 becomes $615,000 over 20 years and a return period of 44 years. I am not even going to calculate the private college return to avoid making you puke a little in your mouth.

When one considers job prospects, another criticism comes up — that of focusing on preparing students to enter a corporate workforce that is becoming increasingly less appealing. While some colleges and universities have had success with entrepreneurship programs in the past few years, by and large they tend to churn out and even encourage (somewhat subconsciously) new students built and focused on jobs with Fortune 1000 firms. However, data suggests that a large proportion of new jobs created in the US (some studies suggest as high as 70%) comes from companies that are younger, typically under five years of age. More specifically, they are preparing students for jobs rather than for opportunities to build their own futures.

Even employers’ attitudes are shifting away from traditional Higher Ed as the only means of gaining the necessary skills for their open positions. A recent New York Times article focused on Google’s hiring practices highlighted their perspectives on what they look for during the hiring process. From the Times:
The guy in charge of hiring for one of the world’s most successful companies — noted that Google had determined that ‘G.P.A.’s are worthless as a criteria for hiring, and test scores are worthless. … We found that they don’t predict anything.’ He also noted that the ‘proportion of people without any college education at Google has increased over time’ — now as high as 14 percent on some teams.
For all of these reasons, I am focused on a future that will likely have viable alternatives to today’s higher education system as the only path to financial success. Alternatives that do not saddle my children (or other adults) with debt that will literally take decades to dig out from. Alternatives that can still provide a community that fosters the same learning, experiences, and relationship-building that occurs on traditional college campuses today.

Alternatives to traditional Higher Ed are few today and very under-developed, but there are glimmers of hope. Much has been made of Massive Open Online Courses (MOOC for short) as a viable alternative to learning, but the market is fragmented and still developing its strengths. The Bill & Melinda Gates Foundation has thrown money and support behind many of these initiatives, and, while I think they still have a way to go, my friends in Higher Ed see them as a real long-term threat to their institutions’ survival.

On the community end of things, there are pockets of hope springing up around startup communities across the country. In traditional tech startup communities, such as the San Francisco Bay area, groups of young people (including many college dropouts) are moving into homes to start businesses and truly pursue their passions.

But these communities are not just for traditionally tech-rich areas like San Francisco. My hometown of Cincinnati is experiencing a similar burst of community-building around entrepreneurs — as evidenced by a group called Unpolished, which is sponsored by Crossroads Church ( and is connected to city-wide incubators like CincyTech and the Brandery. Similarly, programs like the Peace Corps or Americorps have also long provided communities and development opportunities for young people (typically in a non-business context).
However, these communities are largely unorganized toward the goal of being an alternative to Higher Ed, and there is no clear pathway for people to bring or create curriculums that provide the same level of endorsement as a college degree. But the problem isn’t in these organizations or institutions. It’s in how we view these approaches as an alternative to a college degree.

I believe that a future, effective educational approach can’t be left to institutions and that real change must start with parents taking more personal responsibility for creating opportunities to teach in a new and effective way. This is one of the reasons that attracted me to Epipheo. The leadership at Epipheo works hard to create and protect a culture that encourages the teaching and training of our children.

It is not uncommon for important meetings at Epipheo to include children — not crying, screaming babies or toddlers, but impressionable, school-aged boys and girls watching their parents handle themselves in a business setting. They see the consistency of character between Mom and Dad at home and at work. They experience incredibly powerful teaching moments about business and life that, after the meeting, parents can reinforce. In fact, the leadership at Epipheo is doubling down on this vision and commitment to explore the development of a formal training program that will teach children the technical skills related to the core of our business — areas such as animation, story telling, video production, and sound/music composition.

1 comment:

  1. Just read this additional article on the lies of higher education. More great thoughts....