03/15/2013 12:22 pm ET | Updated May 15, 2013

Popping the Higher Education Bubble

In order to pop the current bubble in higher education we need to align incentives between the schools, students, and employers within this multi billion dollar market and apply more efficient means of credentialing.

Current Economics in Higher Education

The viewpoint that there's a bubble in education has recently gone from a contrarian view to widely publicised and more commonly accepted as more and more data comes out.

"To question education is really dangerous. It is the absolute taboo. It's like telling the world there's no Santa Claus." - Peter Thiel

There are so many people with degrees that even "the office "runner" -- the in-house courier who, for $10 an hour, ferries documents back and forth between the courthouse and the office -- went to a four-year school."

Some notable data points include: Growth in tuition prices is greatly outpacing growth in earnings of bachelors degree holders, the ratio of unemployed people without a college degree to unemployed people with a degree narrowing, and the increase in tuition prices (tenfold since 1978) being significantly higher than the cost of living (threefold since 1978).

Unbundling Education

As University Ventures points out:

Bundling has been the primary way universities have managed to avoid the cost/benefit analyses consumers make for virtually every other purchase decision. Just as it has for music, unbundling would dramatically reduce per student revenue in higher education. In microeconomic terms, bundling captures surplus for producers. Unbundling moves some of that producer surplus to consumers and may create new consumer surplus.

Universities have bundled value propositions such as learning, networking, exposure to new ideas, and credentialing, resulting in an over-inflated price.The learning component of the bundle has been largely unbundled by companies like Coursera, Skillshare, Quora, and Tumblr. Now, the more valuable component to unbundle is credentialing.

Project based credentialing

Today, universities do not have a monopoly on learning--only on credentialing. Never before has there been such widespread availability of educational content. It's never been so cheap or easy to learn. Yet until employers start viewing these alternative sources of education and credentialing as viable, much of the innovation happening in the industry will have little impact.

I think results or project based credentialing makes for a great solution because it's a more effective means for employers to evaluate talent and for students to prove themselves to employers.

Higher education is a very inefficient means for people to prove themselves. It costs about a quarter million dollars, and still, in many cases, doesn't effectively equip students with the skills necessary to be successful in the workplace.

There are many students who may be more than qualified for a given job, but won't be considered for it because they didn't go to a strong enough school. People's performance as a 16 year old in high school is having an impact on their career as adults. Applicants like these present employers with the opportunity to make great "value hires."

"Getting an MBA, at this point, will close more doors than open them" - James Altucher

Once students have a more efficient means to prove themselves and employers have a more efficient meant to assess students, demand for higher education should decrease significantly and the difference in pay between college grads and non college grads should narrow.

Aligning Incentives

One of the biggest reasons why many people go to college is to eventually become employed -- however there is a lack of communication and a misalignment of incentives between the parties within the higher education and hiring system. At least part of a school's compensation should be based on their ability to have their students employed after graduating. Or perhaps schools should not teach at all, because students can already get that for free -- perhaps a school should ONLY provide a stamp of approval. When incentives are more properly aligned, I think we'll see courses that are more closely aligned with what employers need employees to learn.

For Entrepreneurs

Massive amounts of money is being spent by employers, students, and schools in this market. Entrepreneurs who can effectively navigate this disconnected and bureaucratic market will have opportunity to solve a very important and very valuable problem.