You Probably Didn’t Know These Five Facts About Student Loans

College is dying.

I’m not referring to the institutions — those will probably survive for a few more decades.

I’m referring to the paradigm.

A paradigm where in order to acquire education you have to:

  1. Select a single field of study.
  2. Part with mobility and optionality + tens of thousands of dollars.
  3. Commit to a 4-year investment while having little clue how your chosen field works in the real world.
  4. Have a central planner dictate what’s worth learning within your field.
  5. Have teachers assigned to you with little room for choice.
  6. Focus on the theoretical over the practical, memorization over problem-solving.
  7. Learn from people without skin in the game.
  8. Rely on a document provided by an institution to prove that you learned something.

Despite the shortcomings above, going to college has been a smart choice for every generation prior to millennials. But over the past 15 years, two trends have made this decision a lot more questionable:

the price increased, the value decreased.

Let’s start with the first.

Tuition inflation & financial optionality

In the 1987–1988 school year, the average yearly tuition in a public college was 3190$ (adjust to reflect today’s dollars).

In the 2017–2018 school year, the average was 9970$ — a 213% increase.

If you choose a private college, you’re going to pay a lot more — the average for 2017–2018 stands at 34,740$.

Average tuition between 1980 and 2015 (inflation-adjusted). Source: National Center for Education Statistics.

More and more students take on debt to fund their education — roughly 70% of college graduates leave college with student debt, and the average sum owed is a whopping 39,400$.

People often underestimate the damage from going into debt early in life.

It’s not the money — it’s the financial optionality.

The most valuable thing a young person has is optionality — location, occupation, education — everything is on the table.

Having to start paying down debt right out of college makes young people less likely to use their optionality for things like:

  • Taking an unpaid internship under a great mentor.
  • Traveling for six months in Southeast Asia.
  • Starting a business.
  • Pursuing a newly discovered passion.

And countless other endeavors one can chase in his early twenties to accumulate life experience and take advantage of opportunities.

There’s nothing as effective as debt in making sure a person stays in his narrow lane and never explores his full range of options.

And it’s not just the graduates who have to pay; their parents suffered from rising college costs as well.

Nassim Nicholas Taleb, in his excellent book “Skin in the Game”, offers a hawkish view on the toll that education institutions collect from society:

“It is a huge drag on the middle class, who have been plowing an increased share of their savings into educational institutions, transferring their money to bureaucrats, real estate developers, tenured professors of some discipline that would not otherwise exist (gender studies, comparative literature, or international economics), and other parasites. In the United States, we have a buildup of student loans that automatically transfer to these rent extractors.”

Can we justify carrying this financial burden? Is the value still there?

Credential Inflation & Decreased Signaling.

While college tuition more than tripled over the past 30 years, the value of a college degree gradually fell due to credential inflation. As more people get degrees, what used to be a unique achievement becomes trivial.

Bryan Caplan, In his book “The Case Against Education”, argues that 80% of the value of a college degree comes from what the degree signals to employers, and not from the knowledge and experience gained while acquiring it.

Caplan lists three personality traits that a degree signals — Intelligence, persistence, and conformity — all of which are desired by employers.

The problem is that signaling is a zero-sum game; earning a college degree doesn’t send a strong signal if a lot of other people have degrees.

And besides, should we spend four years in boring classes just to prove we are persistent? Aren’t there other ways to signal intelligence except for memorizing dry facts we’ll forget in a year?

Today more than ever, the means for learning are abundant. Major strides in technology and a new economy enabled by the internet open the door to a new model of education — one where the individual takes responsibility for his development, and the path that he paves for himself signals not only intelligence and persistence, but also curiosity, ambition, and personal accountability.

Old Paradigm, New Paradigm

In the opening, I listed eight characteristics of the old paradigm. In this part, I will compare each one against the new paradigm.

#1

Old Paradigm: Select a single field of study.

New Paradigm: Combine knowledge from multiple disciplines to create a powerful, unique mix.

The internet economy is creating new professions at a pace too fast for universities to come up with degrees to match them. Many of these professions require two or three different skills, which aren’t taught in the same degree or even in the same faculty.

Take cryptocurrencies, that new technology you probably didn’t know existed three years ago. A new field emerged on the internet, and crypto experts are in high demand. To deeply understand cryptocurrencies requires proficiency in at least three fields: economics, cryptography, and computer science.

A different set of skills is required for becoming a successful blogger — another internet-age profession. Writing classes alone won’t do, as you need to understand marketing and have enough business skills to monetize your work.

It’s often people with a unique mix of skills and experience that separate themselves from the pack. As Scott Adams says:

“Everyone has at least a few areas in which they could be in the top 25% with some effort. In my case, I can draw better than most people, but I’m hardly an artist. And I’m not any funnier than the average standup comedian who never makes it big, but I’m funnier than most people. The magic is that few people can draw well and write jokes. It’s the combination of the two that makes what I do so rare. And when you add in my business background, suddenly I had a topic that few cartoonists could hope to understand without living it.
Capitalism rewards things that are both rare and valuable. You make yourself rare by combining two or more “pretty goods” until no one else has your mix.”

#2

Old Paradigm: Part with mobility and optionality + tens of thousands of dollars.

New Paradigm: Keep your options open, stay location independent and debt free.

Like I already mentioned, one of the benefits of being young is having no strings attached. You don’t have a family to feed, and you’re still early enough in the race that you can afford experimenting.

Grounding yourself to a city for four years, while committing to a full schedule and thousands of dollars in debt — eliminates that benefit almost entirely.

You can take a course in almost anything on the internet for less than 100$, design your learning schedule to fit your life and avoid being location-bound.

You’re free to take a day job that gives you valuable experience, move to a new city on a whim to pursue an exciting opportunity, test your new business idea, or start a blog while traveling in Vietnam; You have almost limitless options when you acquire your education online.

A beautiful photo of rice terraces in Vietnam — because why not?

#3

Old Paradigm: Commit to a 4-year investment while having little clue how your field works in the real world.

New paradigm: Commit to a few months at a time, reevaluate using hands-on experience with your field.

How can you choose a field to devote four years of your life to if you’ve never spent a day working in it?

And more importantly — why would you?

Imagine you wanted to be a game developer. In the old world, you would enroll in a 4-year computer science program — hopefully one that offers a specialization in games. It would take way too long to come in real contact with the gaming industry, which is essential for figuring out if you’re really on the right track.

In the new world, you download the Unity game engine for free, watch a few hours of tutorials, and you’ll have your first game running.

It will suck, of course, but you’ll know if you’re having fun.

If you find that you do, you can spend 6 to 8 months improving your skills, taking courses on Udemy, joining a community of indie developers, engaging with people from the game industry on Twitter, and trying to secure some freelance gigs on Upwork.

Once you have some real friction with the industry you want to work in, you can decide if you’re going to invest further or try something else.

“Inside” — a critically acclaimed atmospheric adventure game created on the freely-available Unity engine.

#4

Old Paradigm: Have a central planner dictate what’s worth learning within your field.

New Paradigm: Build your own curriculum and update it constantly as the world changes and evolves.

Within every discipline, there’s a huge variety of topics, and innovations are happening every day. When other people design your curriculum, they dictate what’s worth learning and what you should focus on.

The central planner designing the agenda doesn’t have your particular interests in mind, and might not be up-to-date with the latest developments in your field. That can result in you spending time in classes that don’t serve your goals or don’t interest you at all.

Let’s go back to our game developer example.

Do you want to focus on mobile games, or on console games? Do you want to work for a big company like Electronic Arts, or do you plan to start your own indie studio?

How you answer those questions will determine what programming language you should focus on and what additional skills you should develop outside of coding.

Don’t leave these decisions to someone else. Your time is precious and scarce.

#5

Old Paradigm: Have your teachers assigned to you with little room for choice.

New Paradigm: Pick the best teacher you can find for each subject.

Who you learn from is just as important as what you learn.

By signing up for college, you limit yourself to a handful of teachers who work there. When you design your own education, you can choose the best teacher for each subject — one that has the experience you’re looking for and the teaching style that resonates with you.

If your goal is to get into Bitcoin programming, take a live workshop with Jimmy Song. If you want to become a better writer, Malcolm Gladwell offers an online course. If you’re going to learn about investing, reading Buffet and Taleb offers a higher ROI than any finance course in Harvard.

Malcolm Gladwell, Author of bestsellers like “Outliers” and “Blink”, now shares how knowledge online.

With time, the best teachers will gravitate towards teaching on a massive scale, not in university, because that’s where impact and financial compensation could scale to the level of their talent.

Whether you love or hate Jordan Peterson, he makes way more money and impacts a lot more people now than he could ever dream of as a college professor.

#6

Old Paradigm: Focus on the theoretical over the practical, memorization over problem-solving.

New Paradigm: Focus on the practical and solving real problems (but study valuable theory).

If you want to be a graphic designer, which option is more likely to develop your skills?

  1. Memorizing facts on the history of art.
  2. Figuring out how to get that logo right for the customer you recruited on Upwork.
Upwork — an online marketplace for talent. Credentials not required.

If you go the second route, you’ll be forced to answer essential questions:

  • How do I get a clear understanding of what the customer wants?
  • Should I show the customer many sketches, or should I wait until I have a final design?
  • Am I even enjoying this?

Finding the answers to questions like these will take you faster towards your goals, and if you ever feel like you lack theoretical knowledge — nothing stops you from getting it. Focusing on practical, hands-on learning doesn’t mean you reject theoretical knowledge — only that you need to be convinced of its usefulness before you invest your time.

#7

Old Paradigm: Learn from people without skin in the game.

New Paradigm: Learn from people that have their reputation on the line and a stake in your success.

You should worry about your professor’s tenure. He has very little to gain from your success, and almost nothing to lose if you fail. In other words — he has no skin in the game.

Skin in the Game” — the best book I read in 2018.

One of the unique concepts I encountered as a poker player was “coaching for profits”, where a professional player would coach a beginner in exchange for a percentage of the student’s profits at the tables. If the student makes nothing, the coach wasted his time, but if the student makes it big — he gets to participate in his success. This is a great model for two reasons:

  1. The coach only takes students that he can help.
  2. The coach is committed to the student’s success.

“Lambada School” is a successful startup that offers coding bootcamps with no upfront cost — you only pay if you get a job that pays at least 50,000$ a year. When your enroll to one of their programs, you know they’ll do anything they can to get you there, because their business depends on that.

A teacher selling a 15$ course on Udemy might not have this level of skin in the game, but he still has to compete with other teachers in his space. If the course is anything less than excellent, it’s unlikely to stand out, which directly impacts his financials.

Teachers who sell their products and services in an open market must earn people’s trust every day, and they’re always a few bad reviews away from losing it.

The importance that online consumers place on reviews grants the student incredible power. If you buy a high-rated 15$ course and leave a negative review, the instructor suffers more than 15$ worth of damage. That makes his interests more aligned with yours, a direct result of skin in the game.

#8

Old Paradigm: Rely on a document provided by an institution to prove that you learned something.

New Paradigm: Have your work vouch for your ability, not a piece of paper.

People don’t care about degrees; they care about getting things done.

If you convince that you can deliver, employers will give you chance. If you exceed their expectations, they’ll do almost anything to keep you.

Getting your first chance is always tricky. When I was 21, I wanted to get into software. I didn’t have any experience or credentials — only some basic skills I acquired online — but I was eager to learn and adapt, and I was willing to work hard and work for free.

A friend helped me secure an unpaid internship: I worked for five months without pay, which I could afford to do because I was debt-free and had some savings (again, financial optionality).

When the project ended I flew to Colombia and traveled for five months in South America, and when I got back I was able to use my work from the previous project to secure an entry-level position that paid 3 times the minimum wage — more than I needed to cover everything I wanted to do at that stage of my life.

Today, no one asks me why I don’t have a degree. When companies hire me as a consultant, the only thing they care about is that I’ve been doing this stuff for nine years.

It takes work and some creativity to get your foot in the door, but you can win years of your life in return.

Maybe You Should Still Go To College

I’m not suggesting that no one should go to college, but we need to think about it as one of many options, and not a default path for everyone.

In my opinion, you should go to college if the following conditions are met:

  1. You’re certain that you want to spend at least a decade of your life in the field that you’re studying.
  2. The only way to get into that field is by getting a college degree.

If that’s not you, then there’s never been a better time to embrace the new model of education.

A model that enables you to:

Source : https://hackernoon.com/college-is-dying-design-your-own-education-830dd607dad7

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