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Peter Thiel Fellowship Bursts Education Bubble

By (view all posts by Allegra.Ringo)
at 7:56AM Wednesday June 8, 2011
under Newsworthy

Peter Thiel, the billionaire co-founder of Paypal, is giving out fellowships to young entrepreneurial hopefuls. The Thiel Foundation plans to grant a $100,000 fellowship to 24 people under the age of twenty. To qualify, the recipient must start up their own business, and drop out of college for two years to do so.
With this project, Thiel aims to challenge what he calls "the default assumption" that everyone should go to college. He argues that education is "overvalued," and that universities are not environments in which "ideas can develop." Thiel ultimately believes that it's more worthwhile--both in terms of personal finance, as well as benefit to society--for a young person to devote time and money to entrepreneurial efforts than to pursuing a college degree. But, statistically speaking, how true is that?

With regards to long-term financial security, dropping out of college is a risky venture. Workers who have a bachelor's degree earn significantly more on average than those with less or no college education. Note the figures for median weekly earnings and unemployment rates in 2010:  As education level increases, median earnings increase, while unemployment rates decrease. Workers with a bachelor's degree earned roughly 1.5 times as much as workers with "some college," and nearly 1.7 times as much as those with a high school diploma.

In his post about whether a college degree is necessary for financial success, DealPro Penny Ray listed several examples of entrepreneurs who "made it" without a college degree. It's true that there will always be the Bill Gates, Richard Bransons and William Randolph Hearsts of the world to prove that this is possible, but these success stories are statistical anomalies. It may seem like we hear about them all the time, but that's because they make for more intriguing stories than their less successful counterparts do. "Mark Zuckerberg's Personal Wealth Valued at $13.5 Billion" is probably a more interesting headline than "Guy Opens Frozen Yogurt Shop, then Closes it a Year Later."

Consider the following graph of start-up failure rates. The graph illustrates businesses started in 1992 that were still "alive" in 2008. The numbers aren't too encouraging: 50% of new businesses were closed by year four. This doesn't mean that no one should ever start a business, of course. Moreover, there's no reason to think that attending college and starting a business are mutually exclusive options. However, it does mean that putting all your eggs in one basket is very risky, even if that basket is lined with seed money from Peter Thiel.

College is, of course, time-consuming and expensive. And unfortunately, public universities are only getting more expensive as time goes on. There's no question that college is an investment and, sadly, not one that everyone can afford to make. Statistically speaking, though, if you can afford it, obtaining a four-year degree is a smart financial decision. As unromantic as it sounds, it's wiser to make your decision based on statistical probability than on Mark Zuckerberg's success story.

I agree with some of Thiel's points, namely about classism and elitism in Ivy League schools.  I disagree, however, that dropping out of college is a solution to these problems. I worry that the fellowship recipients will take Thiel's enthusiasm for entrepreneurship--and distaste for the education system--at face value, and expect more out of their business ventures than they may be able to achieve.

What do you think of Thiel's fellowship program? Tell me in the comments.