I'm not opposed to such schools, I just think they should advertise themselves honestly, and not try to compete with four-year schools for the same reason McDonald's doesn't try to compete with a steak house.
You're not going to learn abstract algebra from an employer!
But a lot of people, such as Harvard admissions, do pretend that attending Harvard has such benefits.
In contrast, no one at Harvard is pretending that they couldn't afford to enroll ten times as many students.
Put another way, Thiel fundamentally doesn't fund most people because most people are bad investments. Harvard admissions isn't claiming that it won't admit you because you're a bad investment and would devalue their brand. They're claiming that, if you were admitted, the experience of attending Harvard would increase your personal quality, but they nevertheless won't admit you for undisclosed reasons.
Imagine: thousands of applicants from around the world vie for a spot in Nollege, a new kind of edtech startup. Admitted students are flown to the "campus", an exotic site, rotating yearly and chosen for its cheap room and board. Instruction that can be automated a la Khan Academy, is; more experienced students also tutor newcomers as needed. Students spend half their time on work-study/internship programs, which cover all costs of attendance. They're encouraged to leave whenever they feel ready, be it one semester or 10; no arbitrary rules about which courses to take. When they do, they emerge with the same bonds of friendship and learned knowledge as their college-attending peers, but are years ahead in working experience and also debt free.
Perhaps this would be most feasible for cs, where the only materials needed are a laptop and WiFi, but I could see it working for English, art, mathematics, and many other disciplines.