I was going to selectively quote from this article by Bryan Caplan, but I ended up copying and pasting the whole darn thing. Just read the article; it's pretty short.
Bryan Caplan is a economics professor who writes a lot on the "signaling model of education": the idea that education is valuable not because of the knowledge and skills it teaches (as per the "human capital model") but rather because of the certification and fancy initials you get to put after your name (B.A., MBA, LL.D., Ph.D, etc.). In other words, education is valuable as a "signal" to others of your supposed abilities, regardless of whether you actually have them or whether said abilities are even relevant.
This isn't a new idea in and of itself, but it's become increasingly relevant as youth unemployment remains high, tuition costs remain unaffordable, federal student loans are reexamined and student debt reaches record levels.
Bryan points to a lot of strange distortions due this signaling effect dominating the pure intellectual effects of education. For example, if human capital model were correct and education's true value lay in its transfer of knowledge and skills, then everyone should audit.
The best education in the world is already free of charge. Just go to the best university in the world and start attending classes. Stay as long as you want, and study everything that interests you. No one will ever "card" you. The only problem is that, no matter how much you learn, there won't be any record you were ever there.
So why doesn't everyone do this? One theory could be that everyone actually really wants to, but the physical difficulties of being in the right location (geographically near a top university) and free at the right time (class hours are usually at daytime on workdays) are prohibitive. Fortunately, these are the problems that online courses (or if you prefer, MOOCs) try to tackle.
Thus, if the signaling model were false, instead of going to a real universities, online courses (of the same academic caliber and rigor) should be a perfect substitute. In my ideal world, they would be, but of course, that's not actually the case. Otherwise, why would online courses be trying to move into the certification business?
Has this always been true? More specifically, has the signaling effect always dominated the pure intellectual effects of education? I would argue no. Then why has it changed? Very simply, the price of knowledge has significantly decreased. This is due to technological advances and the democratization of information. In fact, the existence of sites like Wikipedia shows that knowledge is practically free (free as in free beer, not free speech). It doesn't make sense that as the price of knowledge decreases, the cost of education hasn't gone down (rather, it's gone up).
The final question remains: even if you're right, so what? As long as rational employers are fully conscious of the signaling model and completely cognizant of the fact that their hiring decisions are based on possibly nothing more than fluff and air, why should we care? If they choose to hire an ignorant Harvard grad over a more capable state school grad because they're too lazy to do their due diligence and look beyond credentials, then that's their loss. They'll fully bear the costs of their own decisions, as they are forced to pay for employee training programs to teach the skills that universities never did.
However, the reason that we should care - that everyone should care - is because of the negative externalities this imposes on the system. This is visible in the higher degree treadmill process observed in the US labor market: today we have so many bachelor's degree holders that job seekers are increasingly jumping to master's degrees. This has reached the point where jobs previously only requiring bachelor's degrees now require master's degrees, despite no obvious increase in job difficulty or worker aptitude. These inefficiencies incur costs that will eventually be born by everyone.
Of course, the real world is rarely this black and white. Most realistically, education displays both effects of the signaling model as well as the human capital model. There are still people who care about learning for learning's sake and there are still industries which select candidates on a more meritocratic basis (programming and investing are two examples). Unfortunately, this seems to be the exception rather than the rule.