Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stinovich from Bloomberg Radio. So, student loan debt,
Speaker 1: check it out. Everyone. We've talked about this before. Sitting
Speaker 1: at nearly one point seven trillion. As a parent who
Speaker 1: has spent the last year going through the college application
Speaker 1: process with my high school senior, I've been really looking
Speaker 1: forward to talking with our next guest. Um, so I
Speaker 1: know kind of what my money will get for me,
Speaker 1: uh and my daughter. More importantly, Ron Lieber is the
Speaker 1: Your Money columnist at the New York Times. He writes
Speaker 1: about personal finance for The Times before that at the
Speaker 1: Wall Street Journal, my alma mater. His new book is
Speaker 1: The Price You Pay for College, an entirely new roadmap
Speaker 1: for the biggest financial decision your family will ever make.
Speaker 1: Ron joins us on the phone from Brooklyn. Um, Ron,
Speaker 1: great to have you here with Tim and myself. UM, welcome, welcome.
Speaker 1: So tell us about this book, what you set out
Speaker 1: to do, what you wanted to find out and kind
Speaker 1: of peel back the layers of this process. Sure, so
Speaker 1: this is a book that was born of a problem
Speaker 1: in my in box. Each spring I was hearing from
Speaker 1: otherwise sophisticated people, successful ones who run organizations in New
Speaker 1: York City that you've probably heard of, who felt like
Speaker 1: they've been run over by a freight train when they
Speaker 1: got to the end of this and realized that they
Speaker 1: had no idea how the levers of discounting were being pulled,
Speaker 1: not just for people with demonstrated financial need um, but
Speaker 1: for affluent people who were getting discount offers anyway, and
Speaker 1: they just had no idea. And this went on spring
Speaker 1: after spring, and I finally realized, Wow, um, I not
Speaker 1: only need to explain this to people, but we also
Speaker 1: need a better set of questions for parents who are
Speaker 1: trying to figure out whether you know, Princeton is two
Speaker 1: hundred thousand dollars better than Rutgers or Mount holyokeaus two
Speaker 1: thousand dollars better than the U mass We just needed
Speaker 1: a better set of questions, and we needed answers from
Speaker 1: the schools and the data that they do not like
Speaker 1: to give up run Um. I didn't graduate from college
Speaker 1: that long ago, but it's like my alma maters like
Speaker 1: almost twice as expensive as it was when I graduated
Speaker 1: back in what two thousand six? How How does this happen. Well,
Speaker 1: there are a couple of things going on here. Right.
Speaker 1: There are lift prices, right, retail prices, the rack rate
Speaker 1: like the price tag you see on the back of
Speaker 1: the hotel room door. And then there's the price that
Speaker 1: everybody is paining, right, and so on the whole something
Speaker 1: like of all undergraduates nationwide gets some kind of a discount.
Speaker 1: It's either through need based aid or this so called
Speaker 1: merit aid that comes regardless of your ability to need
Speaker 1: you know, to pay and and main facts have nothing
Speaker 1: to do with your grade, and essay scores are very little. Um.
Speaker 1: So you know, it gets complicated. But the farther you
Speaker 1: go up the food chain to the most selective publics
Speaker 1: and privates, the more likely it is that people are
Speaker 1: painful price. And some of these institutions, as many as
Speaker 1: six of the families are faithful price. So what what
Speaker 1: What seems so crazy to me, Ron is why don't
Speaker 1: we just mark the price like it should be, because
Speaker 1: I feel like we're on this crazy like hamster trail,
Speaker 1: like kind of you know, um, And it's just schools
Speaker 1: have to raise a lot of money for their endowment
Speaker 1: and people have to donate a lot of money for it,
Speaker 1: and I feel like the cost of the school has
Speaker 1: just gone on and like there's just this weird thing
Speaker 1: that's going on. Why don't we just set the price
Speaker 1: as it is what you know, what we're getting, and
Speaker 1: and maybe it would make it more affordable that you
Speaker 1: wouldn't need to have so much um need based aid
Speaker 1: go out. Yeah, you know, I wish it was simpler, right,
Speaker 1: But we're generally talking about two different kinds of schools, right,
Speaker 1: We're talking about the public ones and the private ones.
Speaker 1: And then the private ones themselves get subdivided because there
Speaker 1: are you know, private super selective schools that do have
Speaker 1: endowments that throw off a fair amount of income each here.
Speaker 1: But then there's a whole mess of private ledges and
Speaker 1: universities that are extremely tuition driven and they don't have
Speaker 1: endowments that are off enough money to you know, support
Speaker 1: the institutions. And so there's a transfer going on of
Speaker 1: you know, higher income, higher price DAGG people subsidizing the
Speaker 1: lower price DAGG people. So you know, you ask about
Speaker 1: this notion of a tutition reset, right, why don't they
Speaker 1: just lower the price if everybody's getting a discount anyway,
Speaker 1: So that would pose two problems. First of all, there
Speaker 1: is this theory in the higher education marketplace known as
Speaker 1: the hivest Regal effect that's based on a legend that
Speaker 1: may not even be true that at one point in
Speaker 1: the past chivst Regal tripled its price and quadrupled its
Speaker 1: sales overnight. And so these schools feel like if they
Speaker 1: lower their list prices that people will think less of them.
Speaker 1: And then just about every school, though not all of them,
Speaker 1: there are a few people who still pay full price,
Speaker 1: particularly international families or just the you know, people domestically
Speaker 1: who are just like Thanking. They're lucky ours that their
Speaker 1: kids got their act together, and they're happy to write
Speaker 1: a check of any size. Right, you lose that revenue,
Speaker 1: you lose that incremental revenue if you lower the list price.
Speaker 1: I'm still having trouble ron getting my head around the
Speaker 1: the the question why college tuition has grown so much
Speaker 1: more quickly than inflation, especially over the last thirty years. Sure, well,
Speaker 1: let's start with the state institutions. So what's going on
Speaker 1: there is the subsidies from the state legislators have fallen
Speaker 1: in the last big recession in oh eight oh nine,
Speaker 1: two thousand and ten. They just cut this to the
Speaker 1: to the bone. And the easy thing for the state
Speaker 1: universities to do, uh, to make up the differences, to
Speaker 1: you know, raise the prices to the people who live
Speaker 1: in the state and also to try and attract more
Speaker 1: people from out of state and charge them even more
Speaker 1: with the presents. It's a little bit different. And what
Speaker 1: they said to me over and over again when I
Speaker 1: was in um, you know, the offensive these presidents demanding
Speaker 1: the same information that you're demanding for me. They said, look,
Speaker 1: what do you want us to do? Like sixty to
Speaker 1: sept percent of our costs are professors, administrators, and staff.
Speaker 1: And you know, if you believe the Wall Street Journal
Speaker 1: editorial page, we we we've got an administrative bloat problem
Speaker 1: here because of all of the regulations. But the regulations
Speaker 1: come from the legislators that we all vote for at
Speaker 1: the ballot box. And we as parents want our kids
Speaker 1: taken care of. We do want our kids with mental
Speaker 1: health issues and disabilities to be able to access these institutions.
Speaker 1: We want our daughters on the ice hockey of you know,
Speaker 1: in the ice hockey ranks the same way that the
Speaker 1: guys are. And to keep track of all of this
Speaker 1: stuff and and make sure that all students are well
Speaker 1: served and equally served. Does require trained people and they
Speaker 1: are not cheap. Wow, okay, well there are a lot
Speaker 1: of Really it wasn't It's not because they need to
Speaker 1: mode the law. You know that most of these institutions
Speaker 1: are not growing that much geographically, and so you know,
Speaker 1: the lawn only costs so much now, things like lazy
Speaker 1: rivers and climbing walls. These have become sort of like
Speaker 1: totems and boogeyman's um, you know, for people who say
Speaker 1: college spending is out of control. But this is the
Speaker 1: manner in which our kids have become accustomed, right. I mean,
Speaker 1: many high schools have climbing walls now, and we're the
Speaker 1: ones who take kids on vacations to places to have
Speaker 1: lazy rivers. And really there's only a couple of dozen
Speaker 1: lazy rivers and all of higher education. So you know,
Speaker 1: it makes for a nice headline and a funny talking point,
Speaker 1: but these are not the reasons why college costs a
Speaker 1: lot of money. But I want to go back to
Speaker 1: what you said, because I do think that there is
Speaker 1: a belief in this society in many ways that the
Speaker 1: higher something costs the better it is, and we definitely
Speaker 1: apply it to education. So what's your what's your advice
Speaker 1: to parents who you know, I just went through this
Speaker 1: with my daughter, you know, and the thing is doesn't
Speaker 1: feel like that there's many cheap schools in expensive schools
Speaker 1: out there anymore. But what's your advice as someone goes
Speaker 1: through this process with their with their students. Well, I'd
Speaker 1: start by ignoring the list price altogether, the retail price.
Speaker 1: You've got to determine if your family is going to
Speaker 1: have any financial needs defined by the Financial Aid Office.
Speaker 1: You've got to determine if the schools that are interested
Speaker 1: in do any discounting on the basis of what they
Speaker 1: refer to as merit, which you know may have something
Speaker 1: to do with the grades and the sa T score,
Speaker 1: but a lot of other things you know, in your
Speaker 1: kid's portfolio, and look at what the you know, the
Speaker 1: average net price is right, um, And so that may
Speaker 1: not blow your mind quite as much, but it is
Speaker 1: true that there are plenty of people out there making
Speaker 1: choices between three hundred thousand dollar schools and one hundred
Speaker 1: thousand dollar schools over four years. And there's got to
Speaker 1: ask basic questions about what college is for right? Is
Speaker 1: your kid there for the education because they want to
Speaker 1: get into a top five marine biology PhD program? Um?
Speaker 1: Are they there because they want to be in line
Speaker 1: at y Combinator or Clienter Perkins at the age of
Speaker 1: twenty four? For startup money? If that's your goal, you
Speaker 1: may need the three hundred thousand dollar school. Um. But
Speaker 1: you know, it just depends on on the kid and
Speaker 1: what they intend to do with themselves while they're there. Um.
Speaker 1: You know, it sounds like the system is a little broken. Ron,
Speaker 1: what do you think I mean? Do we need to
Speaker 1: change this? This is a this is a lot of money.
Speaker 1: So here's the thing, right, you know, my role at
Speaker 1: the New York Times, and what I consider to be
Speaker 1: my role in life is just to help people work
Speaker 1: within the system as it exists and beat it when necessarily.
Speaker 1: But I'm all for breaking it. Uh. The problem is, Um,
Speaker 1: you know, I have no beef with people to think
Speaker 1: this is all ridiculous, right, Um, there's so much complexity
Speaker 1: built into our personal financial lives, and so this just
Speaker 1: seems like a natural logical extension of that. Um. But
Speaker 1: how exactly would we dismantle this? And with what a
Speaker 1: little cool will um. You know we can you know,
Speaker 1: we can barely uh, you know, we can barely get
Speaker 1: it in a situation in Washington where even ten thousand
Speaker 1: dollars of loan debt is cancelable or forgivable. I mean,
Speaker 1: that's gonna end up being controversial. So free college for all,
Speaker 1: free college for people who have under a hundred fifty
Speaker 1: thousand dollars in household income. You know, it's a it's
Speaker 1: a debate that I think that we should have, But
Speaker 1: I just feel like politically we're pretty far from getting
Speaker 1: there on a nationwide basis, and so I'm just trying
Speaker 1: to help people navigate the system as it exists. All right.
Speaker 1: So two things that somebody should do when they're working
Speaker 1: with their kids for college. I think you should start
Speaker 1: early with the savings if you possibly can, so that
Speaker 1: you have more choices. And I think emotionally honest with
Speaker 1: yourself with your spouse if you have one, and definitely
Speaker 1: with your ex if you've got one of those UM
Speaker 1: about UM, you know, the fear that you have about
Speaker 1: the process, UM, the guilt you may have, any snobbery
Speaker 1: or elitism maybe at play UM, And that will help
Speaker 1: you make sort of clear decisions and then get everybody together,
Speaker 1: including your fourteen year old after eighth grade, and have
Speaker 1: an honest conversation about what you think you'll be able
Speaker 1: to pay and what you might be willing to pay
Speaker 1: or borrow, and what the difference between those two things
Speaker 1: might be. Because in my reporting, that was the most
Speaker 1: interesting part of the market, where schools realized that people
Speaker 1: with the ability to pay no longer had the willingness
Speaker 1: to pay these crazy list prices, and that's where the
Speaker 1: bargains are to be had. That's really interesting. And what
Speaker 1: type of schools are those typically, Well, you know, imagine
Speaker 1: a combined list of all undergraduate institutions in America, ranked
Speaker 1: roughly by selectivity, and so if you start a slot
Speaker 1: forty or fifty or sixty years there, and that's where
Speaker 1: the actions starts. Because people are still willing to pay
Speaker 1: full price for Northwestern, they're willing to pay full price
Speaker 1: for Carlton College, but they're not willing to pay full
Speaker 1: price for Oberlin in many instances, and not willing to
Speaker 1: pay full price, uh, you know, for school to like it. Right,
Speaker 1: So right there, right there is the sweet spot where
Speaker 1: they're starting to throw dollar coupon seventeen year old got it. Yeah,
Speaker 1: well it's different from the reach, the target, the safety list.
Speaker 1: That sound like you know that very well right now, Carol,
Speaker 1: Oh my god, do I know it well? Um? Ron,
Speaker 1: thank you so much, really appreciate it. Ron Labor is
Speaker 1: the Your Money columnist over the New York Times. His
Speaker 1: new book, The Price You Pay for College, an entirely
Speaker 1: new roadmap for the biggest financial decision your family will
Speaker 1: ever make. School is three or four times what it
Speaker 1: costs me. Yeah, and like you know what I'm saving
Speaker 1: right now for a little rlow the two year old
Speaker 1: aam just designed something a child actors, so that's also worked.