06/04/2012 03:03 pm ET Updated Aug 04, 2012

Is Higher Education Worth the Higher Cost?

College tuition costs have more than doubled, even after adjusting for inflation, over the past two decades. Peter Thiel's Foundation is actually paying students to drop out of college to pursue their entrepreneurial dreams. Are we reaching a break point? Does the value proposition of spending tens of thousands of dollars on tuition, often financed through student loans, still make sense? Is it time to think differently about higher education?

The issue brings us to a difficult crossroads for Americans. We're taught to want the best. If a student gets into a top tier university, isn't the right choice to find a way to attend? Even if this choice means taking on a mountain of debt?

I interviewed Cliff Holekamp, a successful businessman and business professor about this quandary. Holekamp attended Washington & Lee University for his B.A., Washington University in St. Louis for his MBA, and then built and sold a chain of healthcare centers. Today, he is appropriately a professor of entrepreneurship in the Olin Business School at Washington University in St. Louis. I posed some tough questions to better understand the issue:

Why is tuition so expensive today?

Holekamp: High school seniors shopping for colleges aren't generally as price sensitive as consumers of other products tend to be. Relatively easy to get government loans enable these young people to choose colleges on factors other than price. In response to their consumers, colleges compete for students on quality factors (such as facilities) rather than on price (tuition).

Has anyone ever measured if the education dollar at a top-tier school translates into better opportunities?

Holekamp: Most universities publish their job placement statistics and depending on your major the differences can be significant. The average annual salary for a graduating business student at Washington University in St. Louis is over $60,000, while the average annual salary for a business student graduating from University of Missouri in St. Louis, only 6 miles away, is roughly $37,000.*

However, businesses hire people, not diplomas. While the Washington University student might be initially exposed to some better opportunities, ultimately the qualities of the individual will be more important for long term success. Every school tries to enhance the qualities of their graduates, but the individual student is ultimately responsible for their own personal development.

Does it make sense for kids to pick a top tier school if they can get in and get the financing to pay for it?

Holekamp: It can, but it depends on the individual. Students need to think specifically about their own individual interests and pursuits, and not get caught up in using group statistics when considering what value they individually place on their educational options.

How do online degrees and for-profit universities compare to more traditional options?

Holekamp: Many online and for-profit universities are of concern because they seem focused on selling students a degree instead of selling an education. Ultimately, people aren't made successful by their degrees, but by how they apply their educations.

In my field of entrepreneurship, my MBA degree hasn't done a thing for me, but the knowledge I learned as a student in the program is something that I have leveraged to great personal benefit.

In this complicated economy where innovation is prized, how can students best prepare for the job market?

Holekamp: Focus on your education, not just on your degree. Educating yourself includes getting the most out of your formal education as well as approaching the rest of your life as a learning opportunity. Learning from work experience, travel, volunteering and other experiences is as important as learning in the classroom.

So do you see the Thiel 20 under 20 as a viable option?

Holekamp: Experiences like the Thiel program can be a very viable option for some young people. In fact, one of my students just dropped out of school to join the Thiel program and it was probably a good choice for him. Personally, I didn't have the needed maturity or discipline at 20 years old, and I think most students, even older graduate students, benefit from a more structured academic environment.

Will tuition costs continue to skyrocket?
Holekamp: Tuition will continue to rise so long as students are willing to pay more and government is willing to fund them to pay more. It's no different than how easy mortgages ran up the price of housing.

Can the country ultimately afford it? What steps could we consider to build a better model?

Holekamp: As President, George Washington actually proposed a national university -- an idea that was rejected by Congress and opposed by many of the other founding fathers. Instead, the individual states, religious orders, and groups of private citizens built the best higher education system in the world with a myriad of competing universities and colleges. With the exception of research funding that was in the national interest, the federal government historically had little role in education. Maybe we already had the best model. The good intentions of the federal government have fueled some unintended consequences, including higher tuition prices.

What conversations should be occurring at the dining room table between parents and kids about college and graduate school?

Holekamp: Students and their parents should be more discriminating customers. They should attempt to determine the value of their education choices. The value of an education is not simply the financial investment of tuition with an expected increase in future salary as the return. Such an approach only guarantees a miscalculation and provides fodder for salesmen.

Being an educated person has value unto itself and can provide fulfillments both tangible and intangible. Your formal education is just one part of your lifelong educational path. Don't be group sold into your major life decisions like education -- consider what educational path is best for your own individual personality and interests.

*2011 statistics reported by their respective career placement offices.
Donius: You can do your own breakeven analysis.