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The Minerva Delusion by Chris Peterson SM '13

the political economy of an educational scam

April 6, 2012

Update on 6/26/2018: in the years since this post has been written, Minerva has significantly changed their educational and business model, and I have received a lot of questions from prospective or current Minerva students who have asked me about whether this post is still totally accurate. The answer is that it is probably not. I stand by my analysis at the time, and am leaving this post up because I still think the critique remains relevant to continuing ed-tech utopianism. However, if you’re someone trying primarily to understand what Minerva is (and ought to be) today, you should probably read something else.

This week the tech and educational press has been buzzing about the launch of Minerva University. According to its founder, Internet entrepreneur Ben Nelson, Minerva is intended to “tap into the demand for an elite American education from the developing world’s rising middle class.” His proposition is simple and compelling: there are more smart students in the world than there are seats in Ivy League schools, and the elastic enrollment afforded by Minerva’s online format will provide an elite electronic education for those huddled masses yearning to learn.

In support of his subversive educational enterprise Nelson has mustered both heavy artillery and covering fire. The former comes from Benchmark Capital, the VC behemoth which has invested $25 million dollars to found Minerva. The latter comes from the long list of luminaries Nelson has recruited to form his advisory board, including such superstars as Larry Summers (former President of Harvard), Senator Bob Kerrey (former head of the New School), and Pat Harker (president of the University of Delaware and former dean of Wharton, Nelson’s alma mater).

I am a big believer in educational access. Education is awesome. Extending education to those who cannot presently achieve it is extra awesome.

And yet I’m troubled by the Minerva Project; specifically, by the lack of credible answers to a few questions that the painfully shallow news coverage have yet to actually address. So I’m posting them here and trying to think through what some of the answers might be.

Question 1: Who will the students be?

According to Minerva’s website, their admissions process will rely “strictly on the world’s most demanding intellectual standards, while giving no weight to lineage, athletic ability, state or country of origin, or capacity to donate.” For the sake of argument I’ll accept this as a reasonably meritocratic mission, at least for an online university that doesn’t have to worry about cultivating diverse perspectives in a brick-and-mortar classroom.

But let’s compare two quotes from adjacent paragraphs in this Economist interview:

“I don’t want or need to disrupt Harvard. I care about the kid who should have got into Harvard but didn’t,” says Mr Nelson.

The plan is for admission standards to be higher than current Ivy League levels,

Wait, what? Who wrote this? Forget that: who edited it? Who allowed these two sentences to appear so closely together and make my brain feel like it’d been filled with coarse sand?

If Minerva has higher standards then Harvard, then how is a student who can’t get into Harvard supposed to get into Minerva? Even the most cynical critics of elite admissions processes tend to make their cases at the perceived academic margins (legacies, athletes, disadvantaged students, etc) as opposed to the intellectual core of your class. Put another way: any student who is capable of meeting some undefined “higher standard” of admission than that held by an elite institution would by definition be one of the most attractive applicants in their pool. In other words the kid who “should” have gotten in already will have.

An article in the Atlantic described Minerva’s mission slightly differently:

[Minerva is for] those students who are being shut out, whether it’s a smart American kid who has to opt for a solid state school when they had their heart set on Brown, or the child of a well-to-do family in Beijing, by offering them a great education and a worldwide network of contacts…Worldwide, [Nelson] believes there are anywhere from 200,000 to 400,000 students who fit his target demographic.


This is a different argument, one which does not suffer from the incongruity above. Here, Minerva is cast not so much as a university for Schrödinger’s student, who simultaneously is and is not one of the top students in the world. This goal is much more modest: Minerva is intended for very good students who wanted to attend elite schools which could not find the space for them.

The problem with this goal is that it is driven, not by the merit or match of the educational environment, but for the desire for prestige, affirming, shining, oily; the sweet and sensual nectar of life-giving prestige.

Take the reference above of a “smart American kid who has to opt for a solid state school when they had their heart set on Brown.” This is a poignant example: it sounds tones of rejection and loss which resonate with everyone.

But hopefully the reason that student had their heart set on Brown was because they felt it was the right match for them: because they loved its open curriculum and brick buildings and Providence location and fantastically creative culture and all of the other things that make Brown Brown. But just like that state school isn’t Brown, neither is Minerva. In fact, the only thing Minerva has – or could have – over that solid state school is the glorious glow of prestige descending like an angel from the advisory board on high.

I did not attend (or apply to) MIT as an undergrad. But I did have a prestigious private school I was in love with. I didn’t get in. I went to a solid state school. I wasn’t as happy as I thought I would have been at the private school, but that was not because of the (lack of) prestige: it was because my state school didn’t have all of the things that made me fall in love with the private school in the first place. Neither would Minerva.

When viewed from this angle, Minerva only solves one of two problems: 1) a problem which doesn’t credibly exist, or 2) a problem of providing prestige to those who value it above all else. Either seems like questionable ground on which to found an institution.

Question 2: How will they pay?

But let’s assume, for a moment, that there are hidden masses of  brilliant spurned students who feel matched to Minerva. How will they pay for it?

Nelson makes a big deal of the fact that Minerva’s thus-unspecified tuiton will be “half that of the Ivy League or less.” The Atlantic ballparks this at $20,000 annually or less, which is indeed less expensive than MIT without financial aid, which will run a wealthy family north of $50,000 a year.

However, MIT, like most of our prestigious peers, gives an awful lot of money away to students who need it: last year, our financial aid budget exceeded $100 million. And we do this because we try to make the best education in the world affordable to the best students in the world.

This is particularly relevant to Minerva’s target demographic: smart students in the developing world. We give a lot of money to these students. And I mean A LOT. OF MONEY.

Why? Because otherwise, they couldn’t afford it. MIT is extremely expensive in America, where median household income is about $50,000 a year. It’s unfathomably expensive in the rest of the world, with a median global income of $1,700 per annum. And of the difference is provided out of our own pockets because international students aren’t eligible for federal aid. But we still must – and gladly – give every student we admit enough money to attend.

These financial realities are part of the reason why international spots are capped at a certain percentage of our class. It gives us the freedom to take the best students in the world, without having to compromise our process by taking only those international students who can pay, or rejecting top international students because they can’t.

So how is Minerva going to make itself accessible to all of these students in foreign countries? Nelson says he wants to make Minerva the elite university of choice for “the child of a Foxconn line operator in China.” But according to Forbes, average income in China is only $10,200 annually. It’s hard to imagine even a relatively well-paid worker being able to balance a tuition check with rent and food and everything else. In short: if you don’t have financial aid available to your best international applicants, you will not be able to enroll and educate your best international applicants. You will instead be left with a very, very small number of good students who can pay, and a larger number of not-so-good-students who can pay. This creates obvious problems for Minerva’s stated goal of high educational standards.

But while discussions of financial aid appear nowhere on Minerva’s website, a recent tweet by them assured me that aid would be offered.

So what kind of aid will it be?

I apologize if this sounds cynical but I am extremely skeptical that a for-profit university is going to be profligate with grants. All colleges are businesses, but some are more businesses than others: in 2009 the President of Harvard made a very respectable $700,000, while the CEO of Strayer (a chain of for-profit universities) banked over $40 million. Believe it or not when you don’t give any of your money away you can make an awful lot of it!

This is not to say that for-profit schools can’t give financial aid. To the contrary, as this article reports, the average for-profit college receives 75% of its revenue from federal grants and loans. This is accomplished in part by aggressively recruiting educationally risky students as a vehicle for securing federal aid, a set of practices which led to the recent Congressional investigation of for-profit colleges for educational fraud. Consider that though for-profit colleges only enroll about 12% of the nation’s students, those students are responsible for over 50% of student loan defaults.

If I may draw a very deliberate analogy to the most recent debt-fueled financial crisis: counterparties (the student and the federal government) take on all of the risk of an asset of a questionable value, while the university, playing the role of financial intermediary, cleans up on the fees (the federal financial aid).

But even this is beside the point, as Nelson envisions “only 5-10% of Minerva’s students will be U.S. citizens”, which is to say that only a very small portion of Minerva’s students will even be eligible for federal aid.

So what happens with the other 90% of international students who need 90% of their tuition covered?

There is, as Forbes reported one huge and relevant difference between Chinese and American households: debt, and the lack thereof. “The average US household debt is 136% of household income, compared to 17% for the Chinese.” This is especially true in education. Student loan debt in America now exceeds $1 trillion; the domestic loan market is already near the saturation point. But the emerging markets of the developing world are not nearly so highly leveraged in higher education.

Suppose Minerva provides not grants, and not federal aid, but instead extensive private loans to the students of the developing world. Then, the relevant questions of the university change from “what education can we provide at what standard” to “are we achieving a sufficient return on investment for our student loans.”

If this is the case, then the old insight about ad-supported media maps nicely to Minerva. Remember: when you watch a show, or read a newspaper for free, you’re not consuming the product of content; you are the product, and your attention is being sold to advertisers. If Minerva’s financial aid is primarily private loans at high rates of interest to underleveraged students in the developing world, then I’d be willing to bet the real product is the debt being sold to investors. 

If that’s true, then Minerva isn’t a university: it’s an emerging markets fund hiding behind the mask of higher education.

Question 3: What’s really going on?

As far as I see it there are two explanations here.

Explanation 1 is that Ben Nelson, altruistic visionary, earnestly believes, against the odds and experience of literally every other educational institution, that there are hundreds of thousands of students in the world who are:

  • of equivalent or higher academic caliber than current students of elite, prestigious universities, but who are not admitted to elite, prestigious universities, and
  • have the resources to pay Minerva’s tuition, which will likely many times global median income, without compromising the first two characteristics or being plunged into hopeless, crippling debt, because
  • they have been given generous, reasonable aid by the benevolent benefactors who inhabit the halls of high tech venture capital.

Explanation 2 is that Ben Nelson, Wharton grad and former M&A consultant, has realized that:

  • there is more international demand for prestigious, name-brand American education than there is supply, and
  • if he can conjure prestige ex nihilo then he can tap that demand by distinguishing Minerva from the unsavory, disreputable actors already choking the for-profit university market, and
  • in the process, and of financial necessity, load his comparatively underleveraged international students with loans that will return an appreciable rate to his investors

Now, I don’t know which one of these explanations is true, but I do know which one I personally think is a hell of a lot more likely, and hint: it’s not the one that involves relying on the altruism of venture capitalists. In fact, in the Minerva spirit of treating colleges as investment properties, I came to conclusion that I didn’t even care which explanation was true, because either way it’s awful junk that I’d short in a second if given the chance.

The truth is that if you’re a student (especially an international student) who can’t go to a place like MIT but still wants to learn something, the situation isn’t great, but it’s better than it ever has been before. Here at MIT we give away OCW and MITx for free; I also highly recommend Khan Academy and Stanford’s Engineering Everywhere.

Granted, it might not be the same as actually attending an elite school with a terrific education and meritocratic admissions and financial aid.

But then again, neither is the Minerva Project.