I can't fathom dropping out of MIT with only a year left. Maybe he won't ever need the piece of paper, but surely MIT doesn't cram American History and Introduction to Communications in the senior year.
Heck. From what I hear, being a full time student at MIT can be pretty challenging on its own. I only know a couple people at MIT, but they've all talked about how challenging it is (in an enjoyable way).
You shouldn't be so quick to knock the idea. People probably said the same thing about a stupid website that was pretty much a yearbook online. It has 3milliom monthly users, he can definitely turn it into a revenue generator and is in a great position to be strategically acquired by Washington Post (which owns Kaplan), or Princeton Review. Dropping out of MIT is a risk- but, he can always return.
Having a website that 20% of teachers nationwide use is a pretty powerful place to build a business from. Quia started from the same place, and now does something like $40M/year in revenue with their IXL product.
Technology is driving huge changes in the education industry. First the price of the technical information that comprises "an education" going to zero. The information that used to exist only in textbooks is now mostly available for free, or almost free. I have a relative in medical school who tells me that when med students need the details of a disease or medication or other medical topic, they just look it up on Wikipedia or another free site.
Second, the price of the learning technology is dropping. Quizlet is an example. It is getting easier to actually learn the material and verify that learning has taken place.
What hasn't happened yet, but what seems to be the logical next step is cheaper or free credentialing: a trusted organization vouching for a person's mastery of a body of knowledge.
Traditionally, if you wanted to become competent, you went to trusted school, worked hard at the course of study provided by the school, and if you completed the course requirements, you got a degree in which the school declares you competent. This was expensive because it was expensive for the school to provide a course of study that made students competent. The school needed to pay for great teachers as well as materials (books) and facilities (libraries, labs). Great teachers, materials, and facilities could not be found except at the expensive schools. The school also tested students but testing made up an insignificant part of the total expense.
Now the costs of providing the education is going to zero. Instead of highly paid teachers lecturing tens of students at a time, Sal Khan is making video lessons that are viewed by tens of thousands. Instead of expensive textbooks, Wikipedia provides better information for free. Instead of recitation hours in a classroom, students are tutoring each other online or testing themselves with flashcards.
Traditional educational institutions are being left with a shrinking value proposition. They screen students (admission). They verify that students are doing the work and learning (testing). They graduate students (certifying). These functions are not what traditionally justified their high cost.
Of course becoming competent requires significant time and effort on the part of the student. But this doesn't mean that the means used by the student need be expensive. One can become very physically fit without joining an health club and hiring a personal trainer.
While I wish him the best of luck, I'm not sure of the timing of his decision. After all, it's not as if people won't need help learning new things next year. Plus, he's got great traction so it's unlikely he'll be friendstered before he graduates.
Add up the market sizes for: private schools, private tutoring (Kaplan, 1-on-1, etc.), test prep (SAT study guides, etc.), for-profit colleges (Phoenix), language learning (Rosetta Stone), what teachers spend in-budget and out-of-pocket for their classrooms, education iOS apps, etc.
I'm not saying Quizlet does all the same things, but nothing about paying for extra education is what I would call niche.