Peak College

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You may have heard the news this morning that the celebrity parents of bubble-headed Olivia Jade finally gave up their legal fight and have pleaded Guilty to paying huge bribes to get their vapid daughters into USC (which, in those circles, is held up as a superb institution of higher learning). Frankly, Ms. Jade would have done vastly better with a high school diploma and her thriving “influencer” website, but we’re not here to talk about that.

In my opinion, the entire “Varsity Blues” sting operation marked a generational peak in the absolute obsession parents have about getting their kids into a top-rated school. And, listen, if I’m the one throwing stones, I’m in a glass house myself. I’m a father to some terrific kids, and from day one we’ve focused on them getting the best educational opportunities available.

The difference between me and the likes of Lori Loughlin is that I didn’t take on illegal means to get my kids into schools. I didn’t bribe anyone. I didn’t use any connections. We’re just regular people. And my beloved son (for example) got into Stanford because he’s brilliant and extraordinarily accomplished. Not because I’m rich (in case you think I am, kindly check out my investing disposition for the past decade).

When I tried (and failed) to get into Stanford myself, the admissions rate was in the double digits. It has been grinding lower for decades. My son got in, but proportionately to him, there were 19 other applicants (many of them superbly qualified) who didn’t. Indeed, Stanford is just about the hardest place in the country to achieve admission.

Commensurate with the desperate clamoring to get into these schools is the hyperinflation of tuition. The chart below doesn’t even do it justice.

When I went to school, even Stanford was $9,000 a year. These days, you’re looking at $75,000 per year.

And why has the cost of schools outpaced inflation in general? The exact same reason the stock market is overvalued by five-fold: infinite money from the government. With all the supposedly well-intentioned, multi-trillion dollar programs that lend tuition bucks out, naturally schools have eagerly ramped up their rates year after year to take advantage of the bonanza.

But all schools, including the most expensive ones, have all gone online now, and the universal recognition is that the Online Experience Sucks. This isn’t why kids decided to go to college. 99% of the appeal is socializing. Football games. Parties. Frat rush. Hanging out with friends in your dorm room.

Watching someone talk about stuff that’s printed with ink in a book is way, way down the list on what kids want out of college. But that’s pretty much all they are getting right now.

I think three factors are going to cause tuition to drop, admissions rates to increase, and hundreds of colleges to go out of business forever:

1. Drop in International Students – this was a huge reason why places like Stanford increased their tuition hundreds and hundreds of percent. Believe me, every single day you could go there and see busloads and busloads of upper-middle-class Chinese nationals looking around the campus, salivating about the prospects of their kid going there. International interest is going to plummet in a post-Covid world.
2. Diminishment of Government Support – the Federal Government is going to dial back their own trillions dumped onto schools, because they are going to have more desperate needs. They largely killed off the for-profit school industry when they pulled the plug. They can do much the same here.
3. Loss of Interest from Students – The fervor around going to the “right” school is going to die off. I suspect schools are going to stay online longer than people hope. And there’s been a general “smear” with respect to what a panacea school must be, thanks not only to Covid but also the Varsity Blues scandal itself.

Of course, colleges aren’t going to slice prices overnight. Price points are going to be very, very sticky, just like commercial real estate. But as the lack of a “bid” persists for month after month, year after year, I think you’re going to see something no one expected: a massive deflation taking place in the educational space.