After the fall of the Soviet Union and its transition in the 1990s towards a democratic form of government, Mongolia was forced to embark upon a complete series of reforms within society, including within its education sector. Mongolia’s higher education sector was significantly affected by this change. Private higher education institutions mushroomed and the number of university graduates increased significantly. At the same time, the rapid expansion of the sector had serious implications for the quality of education in the country. The declining quality of higher education in Mongolia has now become a major political issue and has caused much heated public debate. Using a mixed-methods approach, this study aims at understanding the gaps between Mongolia’s educational needs and the policies the Mongolian government have implemented in response to the expansion of higher education. By analyzing the socio-political background of the expansion of higher education in Mongolia, it is hoped that some light may be shed on (1) the existence and magnitude of overeducation and its impact on individual earnings, (2) perceptions of overeducation among key stakeholders (e.g., government officials, employers and university deans) and (3) related policy interventions in Mongolia. It is also hoped that this study contributes to deepen understanding of overeducation from a policy borrowing/education transfer perspective. Quantitative analyses were conducted using datasets from the Living Standards Measurement Survey (2002/2003) and the Household Socio-Economic Survey (2007/2007). Qualitative analyses were conducted using information collected through 14 individual interviews with key stakeholders (senior officials, university personnel, private employers and staff from international organizations) as well as from key policy and project documents from the Government and development agencies. In this study, overeducation and undereducation are defined as having a level of education higher (or lower) than the modal value of the years of education observed in respective occupational categories (ISCO-88). With this definition, the percentage of overeducated/undereducated workers for Mongolia was approximately 27% in 2007/2008. This falls within the range of existing studies on the incidence of overeducation using definitions, mostly from developed countries. The findings also show that rates of return to each year of overeducation are positive, but smaller than those to adequate education, is consistent with existing studies. This supports my assumption that overeducation can happen even in a small country with a relatively small economy that heavily relies on resources and agriculture. The study also found that more women are overeducated and people in urban areas are overeducated. However, after controlling other factors, such as education, marital status, and types of job, being male actually increases the odds of being overeducated, while living in urban areas decreases the odds. This suggests that the Government may need to provide skills training targeting men in rural areas for improving their education-job match and create more opportunities for men in rural areas.