Universities are a business like any other:
they have revenues, expenses and a product. Like most companies, one of their most valuable
assets is reputation: yearly rankings are the first thing parents
look at and their interest usually stops there. Naturally, this results in cutthroat competition
between universities: to rank higher each year by obtaining better faculty and larger
facilities. This arms race is one of the reasons why universities
have become so expensive, but it is far from being the only one. Together we’ll learn just how deep the rabbit
hole goes, because today we’ll be looking at the degree factory. This video is brought to you by Skillshare,
the best platform for learning any skill online. The first 500 people to sign up with the link
below will get 30% off their annual subscription. The assembly line of the modern American probably
looks familiar: A tedious grind from kindergarten to twelfth
grade, likely followed by an undergraduate degree. As this percentage increases, the line between
higher education and k-12 becomes thinner and thinner. It has already ceased to exist in the minds
of most middle-class parents, who start saving for their children’s college before they’ve
even learned to walk. It’s gotten to the point where teenagers
are expected to know which university they’re gonna go to and to earn college credits long
before they’ve even decided what they’ll be majoring in. Of course, people’s faith in higher education
is well founded: on average, people with a bachelor’s degree
earn a million dollars more over the course of their lifetimes than their high school
diploma counterparts. Averages, however, can be misleading. If you look, instead, at the median wage of
graduates based on their major, you’ll see that not every degree was created equal. And the people with majors from the bottom
half of this chart, well, you’re much more likely to find them working at a Starbucks. If you look at things on a macro scale, the
situation looks even worse: tuition doubles every nine years, youth underemployment
is close to 50% and student debt in the US is larger than the GDP of Australia. The real winners here are universities, whose
revenues have risen by 56% between 2009 and 2014. But how did we even get to the point where
everyone is supposed to go to college? It wasn’t always like this. In fact, this ‘college is for everyone’
mantra is a very recent development. Universities have been around for millennia,
but back then only a select few could join them. Prior to the 18th century the vast majority
of people were farmers, and they didn’t really need a degree in theology to till the
fields. Once the Industrial Revolution came around
agriculture was replaced by manufacturing, but again: no higher education required. When World War 2 ended in 1945 manufacturing
and services made up about an equal share of the US economy, but ever since then the
industrial base of America has steadily declined. Today, the US is a service economy, with almost
80% of its GDP coming from that sector, and that’s why universities took off. If you look at the rate of enrollment, you’ll
see that it neatly coincides with the rise of services. That’s where the highest paying jobs were,
and Americans were quick to jump onboard. In the span of just a few decades the number
of enrolled students quadrupled, and universities cashed in on that big time. Once they saw just how much money they could
make by admitting as many student as possible, universities started one-upping each other
to stay on top. For private universities, which make 80% of
their revenues from tuition, this meant investing in amenities. Nice dorms, gyms, stadiums; anything that
would keep them ahead, and to get the money to build them, universities had to raise their
tuition. To maintain graduation rates despite admitting
more and more below-average students, universities have had to artificially pump their grades
up. They couldn’t let actual academics get in
the way of their profits now, could they? Back in the 1940s only 15% of students got
As, but today it is the most common grade across the country. All those extra students mean more administrative
work, which has actually become one of the biggest chunks of university spending. Take for example the California Polytechnic
University, where over the course of thirty years the number of administrators more than
tripled, compared to a meager 4% increase in faculty. Unsurprisingly, all of this has caused university
spending to skyrocket and since 1970, it has increased by more than 22 times. To maintain their income universities have
had to increase their tuition, which they’ve done as much as they’ve been able to. But people can only pay so much tuition, so
what do you do after you’ve bled them dry? You get them to borrow more money, and who
better to borrow from than the ultimate lender, the government? Starting with the GI Bill from 1944, Uncle
Sam essentially began subsidizing universities. Civilian loans got underway shortly after,
and since then student loan debt has become second largest form of consumer debt, ahead
of auto loans and credit cards. Today, student loans amount to $1.4 trillion
of debt, 92% of which is in the hands of the government. If you’re thinking “Hmm, doesn’t this
sound familiar?” you’d be right. And if you weren’t thinking that, it’s
probably cause you’re a dirty millennial But really, the student loan bubble is eerily
reminiscent of what happened back in 2008 with the housing market crash, and the worst
thing is that nobody’s doing anything about it. No university is gonna start firing staff
and tearing down stadiums, and that means that the bubble is only going to get larger. As of right now, the average university graduate
takes on over 37,000 dollars of debt, which they’re gonna be repaying over the course
of 20 years. And all of that just to have a 50/50 shot
of getting a job below their qualifications. It’s pretty clear that higher education
reform is sorely needed, and until that happens, things are only going to get worse. The good news is that community colleges have
become a lot more attractive lately, and so too have online courses. In fact, the rise of online freelancing has
made careers without a degree entirely possible. As long as you can do the work, nobody cares
whether you’ve got some expensive piece of toilet paper vouching for you. The Internet is full of places where you can
learn a vast array of skills without going into lifelong debt. Skillshare, for example, is one of the best
platforms we’ve ever used, and the thousands of courses they offer can allow you to learn
an employable skill for as little as $10 a month. With Skillshare you really can learn anything,
from graphics design and animation to marketing and web development. Their professional classes are easy to follow
even for beginners, so if you’ve been wanting to branch out, Skillshare is the place to
do it. In fact, the first 200 of you to use the link
the below will get 30% off your annual subscription. Lastly, I’d like to say thank you to our
patrons for supporting us and to you for watching. Don’t forget to follow us on Reddit, Twitter
and Facebook, and as always: stay smart.