Status U: Student Loans and Why Harvard is Like TikTok
Biden's student debt relief plan and the status-conscious roots of its divisiveness. The weird American Elite University System. What education entrepreneurs can learn from TikTok and social networks.
Man, if you really want to stir up some strong emotions – forgive debt.
My friends' center-left group chat was aghast that Biden had created $600B in loan forgiveness out of thin air.
"It was an overstep of Executive Authority."
"It was fiscally irresponsible."
"It would increase inflation."
I don’t want to doubt the sincerity of my hawkish friends, but I hardly think the core of their ire is deficit spending. The issue feels deeper and more personal than that. For many of them, it seems to be about fairness.
(Now – I also have some friends that question the fairness of telling 17 year olds that going to College is the only responsible choice then lectures them about personal responsibility after loading them up with debt.)
But for this group of friends, the basic question is why should taxpayers be responsible for someone else’s poor financial decision.
After all, these kids signed the contract.
I’m sensitive to this argument. I think any time America “changes the rules of the game” it will reasonably upset people that played by the rules.
What surprises me about the depth of the vitriol is that (if we discount moral hazard) Biden's policy is actually a reasonably good one.
America does many stupid things with tax credits.
PPP loans were intended to save jobs, but an NBER analysis found that only 25% of benefits went to workers with 75% going to to the top 20% of households.
There’s the mortgage tax deduction that costs ~$30B per year to subsidize the wealthiest households:
In contrast, here are some facts on who is receiving the benefits of the student loan program:
This might also be the single biggest policy taken to correct the racial wealth gap in American history:
And then there’s the fact that – despite talking points that loans are for studying Lesbian Dance Theory -- debt is largely held by students in society's most in-demand jobs:
I bring up these other examples not to imply that anyone on the opposing side is racist or classist or ageist or any other -ism. Instead, I raise them to show that there’s something more than economics lurking behind people’s objection to this policy.
And my hypothesis is that the particular divisiveness of this policy has to do with the strange role that Colleges play in American society.
Status U: The Social Capital to Financial Capital Pipeline
Today, 38% of American adults have graduated from some form of higher education. Roughly 10% (~25% of college graduates) have 2-year degrees. The rest have 4-year. That number has increased dramatically in the last fifty years.
That tracks with increasing economic competition to earn a good living wage. And it helps explain why the overwhelming top reason that students go to College is to increase future earnings (58% according to Gallup).
And, for the most part, it does!
People with bachelor degrees can expect to earn 900k more than their high-school graduate peers over their lifetime. Colleges are effective tools for improving economic outcomes.
But is this because they are training better workers or because they increase students' social capital?
As a study of Facebook data by Harvard economist Raj Chetty showed, one of the best predictors of social mobility is exposure to and connection with members of wealthier social groups. In other words, it ain’t the Harvard professors that matter – it’s the other students at Harvard that determine the shape of your future opportunities.
And I think this points to an important, and often-overlooked, point about the democratization of education through technology.
In a famous scene in Good Will Hunting, young-genius-Matt-Damon responds to a smug Harvard student (Clark):
WILL (cont'd) The sad thing is, in about 50 years you might start doin' some thinkin' on your own and by then you'll realize there are only two certainties in life.CLARK Yeah? What're those?WILL One, don't do that. Two-- you dropped a hundred and fifty grand on an education you coulda' picked up for a dollar fifty in late charges at the Public Library.Will, an autodidact, is pointing out that you can get the same education by reading the assigned books as you can by attending Harvard. You don’t need to drop $300,000 for a Harvard education. This, of course, was the original promise of MOOCs and the promise of the internet more generally. When we can educate everyone for free, we will see geniuses come from everywhere. We will break down the old, expensive, elitist university system. We will have true meritocracy. Except that hasn’t happened.
Because Will is wrong.
Harvard’s value isn’t in the books it teaches. It’s in the network and community that students get become enveloped by. A Harvard education is not a commoditized information good.
It’s a status symbol. It’s a brand. It is a way of signaling that you are "elite" and surrounding yourself with an "elite" network.
This is why attempts to introduce competitors to Elite Universities have tended to fail to disrupt the existing players. Elite Universities are not in the business of education. They are in the business of status perpetuation.
We can create meaningful learning experiences that scale decently. After all, when a Harvard or Berkeley student has 1000 kids in an Intro class, they’re essentially attending an in-person MOOC.
What we can’t seem to figure out – is how to scale the Status Game that is the American university system.
But scaling status games is something that Silicon Valley does pretty well. So to figure out how, we’re turning back to one of my favorite essays, “Status as a Service” by Eugene Wei.
Status as a Service: Why Harvard is Like TikTok
Let’s start with a brief recap of Eugene Wei’s theory.
People seek to maximize social status as effectively as possible.
For any new social network, users can be lured in by two distinct values: utility (usefulness) OR status.
Each new social network issues new tokens of status (followers, likes, etc) in exchange for “proof of work” within the network.
Over time, it becomes harder to earn these tokens. This creates scarcity and inherent value.
Let’s take TikTok.
Teenagers want to become famous.
TikTok gives teenagers creative tools (utility), but its real value is that it can help them go viral and become a TikTok star (status).
To achieve that goal, the user has to create compelling videos (“proof of work”).
Going viral on TikTok today is much harder than a few years ago as more people compete for the good. But it is also more valuable than ever to have built a large audience on TikTok.
Let’s think, for a moment, about how this mirrors the rise of Elite Universities like Harvard. Or any of its peer institutions. Or the peer institutions of those institutions. Full Disclosure: I went to Amherst College. I loved my liberal arts education and have definitely benefited from the social network it created for me.
Teenagers want to become successful, world-beating adults.
Harvard gives teenagers access to a network of alumni and a brand that will open doors to future world domination.
To achieve that goal, Harvard applicants have to beat out the 94% of applicants that Harvard rejects.
Getting into Harvard is way, way harder than it was in 1636, or even when JFK applied. Imagine writing this essay to get in today:
I like to think this essay was the inspiration for Jared Kushner’s entire life.
Graduating from Harvard is significantly less important than getting in in the first place.
If we understand the University system in this way, we understand why elite schools can afford to charge so much money. And why they then spend that money more on building their brand than their stated goal of educating citizens.
Quoting a recent NBER working paper by George Bulman: “Overall colleges and universities appear to use greater endowment wealth to increase spending and to become more selective, resulting in higher institutional rankings, but do not increase the size or diversity of their student bodies.”
Colleges are selling a status good. They price discriminate to welcome in enough students meritocratically. Then they welcome enough rich kids at insane price points because they know that demand elasticity is extremely high.
Seriously – how much would Harvard and its peers have to charge its full-freight students to get them to seek alternatives? The number will easily eclipse $100,000 soon.
But Wei also points the way toward disrupting the dominance of these entrenched Status Games. In general, a social network can lose its social status through two different mechanisms:
It becomes so generally used that using the product is a negative signal of social standing. No one of cultural import (outside the Right Wing ecosystem), for example, wants to be big on Facebook these days.
You target a new demographic with the promise of new social capital accumulation in a new vertical.
The former is probably not in the cards. Harvard and its ilk are highly protective of their elite, selective status.
But the latter is interesting. It is why there are Twitter influencers, Instagram influencers and TikTok influencers. Some early social media stars bet big on the platform early-on and were able to ride its growth to success. The interesting question then is not whether MOOCs will disrupt Harvard in education. The interesting question is whether an alternative status/education network might emerge.
And to imagine that path, we will want to – in the tradition of all social networks – focus on areas that mainstream culture deems silly. That means it's time to visit with the #youths.
Jobs of the Future
I’m heartened (as a #millennial) to see that healthcare professionals, lawyers and teachers all appear on the Top 10. But the three jobs are unique here as they are the only ones that require advanced degrees.
Whether the job is being an artist/creator, a competitor (athlete, e-sports), or an entrepreneur, it’s not at all clear that a College education is the best path forward.
All of these fields are more amenable to a different kind of educational model that we’re going to see a lot more of in the coming years. Historically, we would have called these kinds of models “Apprenticeships,” but the new term of art seems to be "Fellowships."
Whichever term you choose to use, this hands-on learning dominated education. Lawyers were trained this way until 1900. Doctors rarely went to Medical School before the late 1800s.
There are already a handful of Fellowships operating. Their defining characteristics are:
“Hacker approach” to learning wherein students learn first by doing and second through mentorship and theory.
Status by Association. These programs lean on their existing status (through founders, partnerships or alumni) to offer attendees the beginnings of status.
Status by Scarcity. Participant spots are limited and need to be selected based on some kind of “merit.”
Revenue Share Model. They do not ask for up-front payments. Rather these fellowships offer education in exchange for an eventual cut of revenue from Fellows.
Let’s look at a couple examples:
Entrepreneurship
The most established examples of this new education business model is from the world of entrepreneurship. Y-Combinator is the world’s most famous “startup school.” It has produced the likes of Stripe, AirBnB, Dropbox, Reddit, Instacart, Faire, OpenSea, Brex and Rippling. It is, for all intents and purposes, the Harvard of the entrepreneurship universe. Like Harvard, YC has a curriculum. But, also like an Elite School, that’s not really the point. Most of the resources for entrepreneurs are available online for free. Instead, what YC really offers founders is access to a highly motivated network. The network consists of other founders, alumni, mentors and potential investors. They are the premier status symbol for any seed-stage startup.
And their “placement” to firms after graduation is tremendous – every top VC scours the YC Demo Day list.
Also not surprisingly – many other incubators have attempted to build on or adapt the YC model. There’s On-Deck. There’s TechStars. There’s the South Park Commons fellowship. Each of these programs conveys a stamp of legitimacy. They also provide access to a network that can help your startup achieve its goals.
Artist/Creator
In crypto-circles, there has long been a lot of hype that crypto would disrupt the economics for artists. For some lucky NFT artists that was true. But the hope has thus far remained a future hope. I think that’s likely because crypto – interestingly – is not primarily a way to innovate on the specific economics of the arts. Rather, it’s a way to help artists build self-sustaining networks of their own.
The old-school economics of the music and movie industry worked like this. An artist would be “discovered” by a label. That label would help develop the artist’s project then market it for them. In exchange, they would take a lion’s share of the economics. This worked well because the movie studio or the record label owned access to distribution. But, today, distribution is more complicated. This, in turn, creates an opportunity.
New DAOs like CreatorDAO (which just raised 20M) or The Great Wave are shaping up as artists’ collectives. In these groups, creators and artists provide mentorship and guidance to one another. They also can collaborate to boost distribution of new artists. In exchange, older creators get a share of the economics of new creators.
Again – education is there, but so is access to the brand-equity and social capital of the community. Why would you pay ~300,000 for a music degree when you could collaborate with artists that have already made it?
Gaming
Gaming is also far along in creating a full-on parallel career-training pipeline.
Despite widely-reported problems, Axie Infinity -- and play-to-earn games -- cultivated a new "scholarship" model.
Yield Guild Games created a "scholarship program" for players. They would invest in players, helping them to acquire decent characters or items to begin playing a game. They then would also help train these players. In exchange, players would share in their take from the play-to-earn games.
NounsDAO, meanwhile, made headlines earlier this year for buying a professional DOTA eSports team. It is easy to contemplate the expansion of gaming training programs modeled after the YGG model.
And, if you are an aspiring professional gamer, will you play for a scholarship to a University? (Assuming that ever exists) Or would you rather get funded and trained by a professional team that offers you a revenue share model?
None of these programs is likely to take the place of Harvard for training future academics. But it is clearly the case that for the dream jobs of tomorrow – higher education is going to look very different. We often get in the habit of thinking that the way things are is the way that they have always been.
But the modern University system is a fairly recent phenomenon. And it may be far less durable than we think. The future could look like a better subsidized College, but it could also look far weirder. The key to ensuring that a new system is a fairer system is to focus on experimenting with the economics of this status game from day 1. Otherwise, our kids will be debating the merits of education reform for eSports athletes and Metaverse celebrities.
That will make us long for the good old days when it cost $300,000 to master the nuances of Lesbian Dance Theory.