WEBVTT - Lieber on New Book 0:00:00.160 --> 0:00:04.160 This is Bloomberg Business Week with Carol Masser and Bloomberg 0:00:04.240 --> 0:00:08.680 Quick Takes Tim Stinovich from Bloomberg Radio. So, student loan debt, 0:00:08.760 --> 0:00:11.040 check it out. Everyone. We've talked about this before. Sitting 0:00:11.039 --> 0:00:13.480 at nearly one point seven trillion. As a parent who 0:00:13.560 --> 0:00:16.720 has spent the last year going through the college application 0:00:16.800 --> 0:00:19.599 process with my high school senior, I've been really looking 0:00:19.640 --> 0:00:22.400 forward to talking with our next guest. Um, so I 0:00:22.440 --> 0:00:24.400 know kind of what my money will get for me, 0:00:25.040 --> 0:00:27.520 uh and my daughter. More importantly, Ron Lieber is the 0:00:27.640 --> 0:00:29.840 Your Money columnist at the New York Times. He writes 0:00:29.840 --> 0:00:32.080 about personal finance for The Times before that at the 0:00:32.080 --> 0:00:34.839 Wall Street Journal, my alma mater. His new book is 0:00:34.880 --> 0:00:37.480 The Price You Pay for College, an entirely new roadmap 0:00:37.760 --> 0:00:40.400 for the biggest financial decision your family will ever make. 0:00:40.520 --> 0:00:43.279 Ron joins us on the phone from Brooklyn. Um, Ron, 0:00:43.600 --> 0:00:47.360 great to have you here with Tim and myself. UM, welcome, welcome. 0:00:47.520 --> 0:00:51.280 So tell us about this book, what you set out 0:00:51.320 --> 0:00:53.560 to do, what you wanted to find out and kind 0:00:53.560 --> 0:00:57.480 of peel back the layers of this process. Sure, so 0:00:57.640 --> 0:00:59.520 this is a book that was born of a problem 0:00:59.600 --> 0:01:02.840 in my in box. Each spring I was hearing from 0:01:03.000 --> 0:01:08.120 otherwise sophisticated people, successful ones who run organizations in New 0:01:08.160 --> 0:01:10.800 York City that you've probably heard of, who felt like 0:01:10.840 --> 0:01:13.000 they've been run over by a freight train when they 0:01:13.040 --> 0:01:15.920 got to the end of this and realized that they 0:01:15.959 --> 0:01:20.319 had no idea how the levers of discounting were being pulled, 0:01:20.720 --> 0:01:24.520 not just for people with demonstrated financial need um, but 0:01:24.760 --> 0:01:28.280 for affluent people who were getting discount offers anyway, and 0:01:28.319 --> 0:01:31.240 they just had no idea. And this went on spring 0:01:31.319 --> 0:01:35.120 after spring, and I finally realized, Wow, um, I not 0:01:35.200 --> 0:01:38.679 only need to explain this to people, but we also 0:01:38.800 --> 0:01:42.479 need a better set of questions for parents who are 0:01:42.520 --> 0:01:46.280 trying to figure out whether you know, Princeton is two 0:01:46.360 --> 0:01:50.000 hundred thousand dollars better than Rutgers or Mount holyokeaus two 0:01:50.000 --> 0:01:52.720 thousand dollars better than the U mass We just needed 0:01:52.720 --> 0:01:55.840 a better set of questions, and we needed answers from 0:01:55.840 --> 0:01:58.200 the schools and the data that they do not like 0:01:58.240 --> 0:02:02.360 to give up run Um. I didn't graduate from college 0:02:02.480 --> 0:02:05.760 that long ago, but it's like my alma maters like 0:02:05.880 --> 0:02:09.919 almost twice as expensive as it was when I graduated 0:02:09.960 --> 0:02:15.240 back in what two thousand six? How How does this happen. Well, 0:02:15.520 --> 0:02:17.240 there are a couple of things going on here. Right. 0:02:17.280 --> 0:02:21.520 There are lift prices, right, retail prices, the rack rate 0:02:21.680 --> 0:02:24.320 like the price tag you see on the back of 0:02:24.320 --> 0:02:26.880 the hotel room door. And then there's the price that 0:02:26.960 --> 0:02:30.320 everybody is paining, right, and so on the whole something 0:02:30.400 --> 0:02:34.600 like of all undergraduates nationwide gets some kind of a discount. 0:02:34.639 --> 0:02:37.760 It's either through need based aid or this so called 0:02:38.040 --> 0:02:40.799 merit aid that comes regardless of your ability to need 0:02:41.320 --> 0:02:43.840 you know, to pay and and main facts have nothing 0:02:43.840 --> 0:02:47.160 to do with your grade, and essay scores are very little. Um. 0:02:47.200 --> 0:02:49.520 So you know, it gets complicated. But the farther you 0:02:49.600 --> 0:02:53.560 go up the food chain to the most selective publics 0:02:53.680 --> 0:02:56.720 and privates, the more likely it is that people are 0:02:56.760 --> 0:02:59.560 painful price. And some of these institutions, as many as 0:03:00.080 --> 0:03:05.520 six of the families are faithful price. So what what 0:03:05.520 --> 0:03:08.519 What seems so crazy to me, Ron is why don't 0:03:08.560 --> 0:03:11.920 we just mark the price like it should be, because 0:03:11.960 --> 0:03:15.760 I feel like we're on this crazy like hamster trail, 0:03:15.880 --> 0:03:18.920 like kind of you know, um, And it's just schools 0:03:18.960 --> 0:03:20.760 have to raise a lot of money for their endowment 0:03:21.400 --> 0:03:23.440 and people have to donate a lot of money for it, 0:03:23.520 --> 0:03:25.600 and I feel like the cost of the school has 0:03:25.639 --> 0:03:27.520 just gone on and like there's just this weird thing 0:03:27.560 --> 0:03:29.560 that's going on. Why don't we just set the price 0:03:29.600 --> 0:03:32.920 as it is what you know, what we're getting, and 0:03:32.919 --> 0:03:34.639 and maybe it would make it more affordable that you 0:03:34.639 --> 0:03:37.800 wouldn't need to have so much um need based aid 0:03:37.840 --> 0:03:41.240 go out. Yeah, you know, I wish it was simpler, right, 0:03:41.320 --> 0:03:44.920 But we're generally talking about two different kinds of schools, right, 0:03:44.960 --> 0:03:47.360 We're talking about the public ones and the private ones. 0:03:47.640 --> 0:03:51.360 And then the private ones themselves get subdivided because there 0:03:51.360 --> 0:03:54.760 are you know, private super selective schools that do have 0:03:55.000 --> 0:03:58.120 endowments that throw off a fair amount of income each here. 0:03:58.160 --> 0:04:00.360 But then there's a whole mess of private ledges and 0:04:00.480 --> 0:04:05.720 universities that are extremely tuition driven and they don't have 0:04:05.960 --> 0:04:08.400 endowments that are off enough money to you know, support 0:04:08.480 --> 0:04:11.800 the institutions. And so there's a transfer going on of 0:04:11.920 --> 0:04:16.880 you know, higher income, higher price DAGG people subsidizing the 0:04:16.880 --> 0:04:19.760 lower price DAGG people. So you know, you ask about 0:04:19.760 --> 0:04:22.640 this notion of a tutition reset, right, why don't they 0:04:22.640 --> 0:04:25.640 just lower the price if everybody's getting a discount anyway, 0:04:26.000 --> 0:04:28.640 So that would pose two problems. First of all, there 0:04:28.760 --> 0:04:32.680 is this theory in the higher education marketplace known as 0:04:32.760 --> 0:04:36.000 the hivest Regal effect that's based on a legend that 0:04:36.080 --> 0:04:38.440 may not even be true that at one point in 0:04:38.440 --> 0:04:41.400 the past chivst Regal tripled its price and quadrupled its 0:04:41.400 --> 0:04:44.039 sales overnight. And so these schools feel like if they 0:04:44.080 --> 0:04:47.560 lower their list prices that people will think less of them. 0:04:47.640 --> 0:04:50.839 And then just about every school, though not all of them, 0:04:51.080 --> 0:04:53.839 there are a few people who still pay full price, 0:04:54.080 --> 0:04:58.240 particularly international families or just the you know, people domestically 0:04:58.279 --> 0:05:00.600 who are just like Thanking. They're lucky ours that their 0:05:00.640 --> 0:05:02.760 kids got their act together, and they're happy to write 0:05:02.760 --> 0:05:05.800 a check of any size. Right, you lose that revenue, 0:05:05.880 --> 0:05:08.320 you lose that incremental revenue if you lower the list price. 0:05:08.520 --> 0:05:11.799 I'm still having trouble ron getting my head around the 0:05:11.400 --> 0:05:16.400 the the question why college tuition has grown so much 0:05:16.440 --> 0:05:22.120 more quickly than inflation, especially over the last thirty years. Sure, well, 0:05:22.200 --> 0:05:24.640 let's start with the state institutions. So what's going on 0:05:24.680 --> 0:05:27.880 there is the subsidies from the state legislators have fallen 0:05:28.040 --> 0:05:30.400 in the last big recession in oh eight oh nine, 0:05:30.440 --> 0:05:32.960 two thousand and ten. They just cut this to the 0:05:33.240 --> 0:05:35.640 to the bone. And the easy thing for the state 0:05:35.680 --> 0:05:38.360 universities to do, uh, to make up the differences, to 0:05:38.480 --> 0:05:40.880 you know, raise the prices to the people who live 0:05:40.920 --> 0:05:43.040 in the state and also to try and attract more 0:05:43.080 --> 0:05:45.440 people from out of state and charge them even more 0:05:45.880 --> 0:05:48.520 with the presents. It's a little bit different. And what 0:05:48.640 --> 0:05:50.560 they said to me over and over again when I 0:05:50.600 --> 0:05:53.880 was in um, you know, the offensive these presidents demanding 0:05:53.920 --> 0:05:57.160 the same information that you're demanding for me. They said, look, 0:05:57.200 --> 0:05:59.120 what do you want us to do? Like sixty to 0:05:59.160 --> 0:06:05.000 sept percent of our costs are professors, administrators, and staff. 0:06:05.080 --> 0:06:06.920 And you know, if you believe the Wall Street Journal 0:06:07.000 --> 0:06:10.360 editorial page, we we we've got an administrative bloat problem 0:06:10.440 --> 0:06:13.360 here because of all of the regulations. But the regulations 0:06:13.400 --> 0:06:15.680 come from the legislators that we all vote for at 0:06:15.680 --> 0:06:18.520 the ballot box. And we as parents want our kids 0:06:18.640 --> 0:06:20.760 taken care of. We do want our kids with mental 0:06:20.800 --> 0:06:24.040 health issues and disabilities to be able to access these institutions. 0:06:24.240 --> 0:06:27.160 We want our daughters on the ice hockey of you know, 0:06:27.480 --> 0:06:29.080 in the ice hockey ranks the same way that the 0:06:29.120 --> 0:06:32.760 guys are. And to keep track of all of this 0:06:32.880 --> 0:06:36.480 stuff and and make sure that all students are well 0:06:36.480 --> 0:06:40.720 served and equally served. Does require trained people and they 0:06:40.760 --> 0:06:45.520 are not cheap. Wow, okay, well there are a lot 0:06:45.600 --> 0:06:47.719 of Really it wasn't It's not because they need to 0:06:47.800 --> 0:06:52.880 mode the law. You know that most of these institutions 0:06:52.920 --> 0:06:57.440 are not growing that much geographically, and so you know, 0:06:57.560 --> 0:07:01.240 the lawn only costs so much now, things like lazy 0:07:01.360 --> 0:07:04.000 rivers and climbing walls. These have become sort of like 0:07:04.080 --> 0:07:07.280 totems and boogeyman's um, you know, for people who say 0:07:07.320 --> 0:07:10.800 college spending is out of control. But this is the 0:07:10.840 --> 0:07:16.040 manner in which our kids have become accustomed, right. I mean, 0:07:16.240 --> 0:07:19.360 many high schools have climbing walls now, and we're the 0:07:19.360 --> 0:07:22.360 ones who take kids on vacations to places to have 0:07:23.120 --> 0:07:25.600 lazy rivers. And really there's only a couple of dozen 0:07:25.680 --> 0:07:29.160 lazy rivers and all of higher education. So you know, 0:07:29.200 --> 0:07:32.040 it makes for a nice headline and a funny talking point, 0:07:32.400 --> 0:07:35.880 but these are not the reasons why college costs a 0:07:35.880 --> 0:07:37.400 lot of money. But I want to go back to 0:07:37.440 --> 0:07:38.880 what you said, because I do think that there is 0:07:38.920 --> 0:07:41.920 a belief in this society in many ways that the 0:07:42.000 --> 0:07:44.600 higher something costs the better it is, and we definitely 0:07:44.640 --> 0:07:49.160 apply it to education. So what's your what's your advice 0:07:49.320 --> 0:07:51.800 to parents who you know, I just went through this 0:07:51.880 --> 0:07:55.120 with my daughter, you know, and the thing is doesn't 0:07:55.120 --> 0:07:58.000 feel like that there's many cheap schools in expensive schools 0:07:58.000 --> 0:08:01.280 out there anymore. But what's your advice as someone goes 0:08:01.320 --> 0:08:05.160 through this process with their with their students. Well, I'd 0:08:05.160 --> 0:08:09.520 start by ignoring the list price altogether, the retail price. 0:08:09.760 --> 0:08:11.840 You've got to determine if your family is going to 0:08:11.920 --> 0:08:15.040 have any financial needs defined by the Financial Aid Office. 0:08:15.040 --> 0:08:17.280 You've got to determine if the schools that are interested 0:08:17.320 --> 0:08:20.160 in do any discounting on the basis of what they 0:08:20.280 --> 0:08:22.440 refer to as merit, which you know may have something 0:08:22.440 --> 0:08:24.440 to do with the grades and the sa T score, 0:08:24.480 --> 0:08:26.320 but a lot of other things you know, in your 0:08:26.360 --> 0:08:29.160 kid's portfolio, and look at what the you know, the 0:08:29.160 --> 0:08:32.280 average net price is right, um, And so that may 0:08:32.320 --> 0:08:35.200 not blow your mind quite as much, but it is 0:08:35.200 --> 0:08:37.120 true that there are plenty of people out there making 0:08:37.200 --> 0:08:40.120 choices between three hundred thousand dollar schools and one hundred 0:08:40.160 --> 0:08:43.600 thousand dollar schools over four years. And there's got to 0:08:43.720 --> 0:08:47.240 ask basic questions about what college is for right? Is 0:08:47.240 --> 0:08:49.600 your kid there for the education because they want to 0:08:49.600 --> 0:08:54.720 get into a top five marine biology PhD program? Um? 0:08:54.800 --> 0:08:57.160 Are they there because they want to be in line 0:08:57.559 --> 0:09:00.280 at y Combinator or Clienter Perkins at the age of 0:09:00.280 --> 0:09:03.960 twenty four? For startup money? If that's your goal, you 0:09:04.000 --> 0:09:07.240 may need the three hundred thousand dollar school. Um. But 0:09:07.400 --> 0:09:09.719 you know, it just depends on on the kid and 0:09:09.880 --> 0:09:13.959 what they intend to do with themselves while they're there. Um. 0:09:14.000 --> 0:09:17.360 You know, it sounds like the system is a little broken. Ron, 0:09:19.080 --> 0:09:20.800 what do you think I mean? Do we need to 0:09:20.880 --> 0:09:23.559 change this? This is a this is a lot of money. 0:09:24.200 --> 0:09:27.400 So here's the thing, right, you know, my role at 0:09:27.440 --> 0:09:29.320 the New York Times, and what I consider to be 0:09:29.400 --> 0:09:31.840 my role in life is just to help people work 0:09:31.880 --> 0:09:35.160 within the system as it exists and beat it when necessarily. 0:09:35.559 --> 0:09:39.520 But I'm all for breaking it. Uh. The problem is, Um, 0:09:39.559 --> 0:09:41.840 you know, I have no beef with people to think 0:09:41.880 --> 0:09:45.240 this is all ridiculous, right, Um, there's so much complexity 0:09:45.240 --> 0:09:47.720 built into our personal financial lives, and so this just 0:09:47.760 --> 0:09:51.480 seems like a natural logical extension of that. Um. But 0:09:51.640 --> 0:09:55.719 how exactly would we dismantle this? And with what a 0:09:55.880 --> 0:09:58.840 little cool will um. You know we can you know, 0:09:58.880 --> 0:10:02.880 we can barely uh, you know, we can barely get 0:10:02.880 --> 0:10:06.360 it in a situation in Washington where even ten thousand 0:10:06.400 --> 0:10:10.400 dollars of loan debt is cancelable or forgivable. I mean, 0:10:10.440 --> 0:10:13.960 that's gonna end up being controversial. So free college for all, 0:10:14.160 --> 0:10:17.360 free college for people who have under a hundred fifty 0:10:17.360 --> 0:10:20.600 thousand dollars in household income. You know, it's a it's 0:10:20.600 --> 0:10:22.520 a debate that I think that we should have, But 0:10:22.760 --> 0:10:25.920 I just feel like politically we're pretty far from getting 0:10:25.920 --> 0:10:28.200 there on a nationwide basis, and so I'm just trying 0:10:28.240 --> 0:10:31.120 to help people navigate the system as it exists. All right. 0:10:31.200 --> 0:10:33.640 So two things that somebody should do when they're working 0:10:33.640 --> 0:10:37.640 with their kids for college. I think you should start 0:10:37.679 --> 0:10:40.960 early with the savings if you possibly can, so that 0:10:41.040 --> 0:10:45.640 you have more choices. And I think emotionally honest with 0:10:45.720 --> 0:10:49.160 yourself with your spouse if you have one, and definitely 0:10:49.200 --> 0:10:51.800 with your ex if you've got one of those UM 0:10:51.840 --> 0:10:55.160 about UM, you know, the fear that you have about 0:10:55.200 --> 0:10:59.199 the process, UM, the guilt you may have, any snobbery 0:10:59.280 --> 0:11:02.160 or elitism maybe at play UM, And that will help 0:11:02.200 --> 0:11:05.640 you make sort of clear decisions and then get everybody together, 0:11:05.800 --> 0:11:08.960 including your fourteen year old after eighth grade, and have 0:11:09.080 --> 0:11:12.080 an honest conversation about what you think you'll be able 0:11:12.120 --> 0:11:15.560 to pay and what you might be willing to pay 0:11:15.679 --> 0:11:18.280 or borrow, and what the difference between those two things 0:11:18.360 --> 0:11:21.120 might be. Because in my reporting, that was the most 0:11:21.160 --> 0:11:24.040 interesting part of the market, where schools realized that people 0:11:24.040 --> 0:11:26.640 with the ability to pay no longer had the willingness 0:11:26.720 --> 0:11:29.480 to pay these crazy list prices, and that's where the 0:11:29.520 --> 0:11:33.240 bargains are to be had. That's really interesting. And what 0:11:33.320 --> 0:11:37.240 type of schools are those typically, Well, you know, imagine 0:11:37.280 --> 0:11:42.080 a combined list of all undergraduate institutions in America, ranked 0:11:42.240 --> 0:11:47.120 roughly by selectivity, and so if you start a slot 0:11:47.240 --> 0:11:50.439 forty or fifty or sixty years there, and that's where 0:11:50.440 --> 0:11:54.280 the actions starts. Because people are still willing to pay 0:11:54.400 --> 0:12:00.240 full price for Northwestern, they're willing to pay full price 0:12:00.280 --> 0:12:03.360 for Carlton College, but they're not willing to pay full 0:12:03.360 --> 0:12:07.240 price for Oberlin in many instances, and not willing to 0:12:07.240 --> 0:12:10.320 pay full price, uh, you know, for school to like it. Right, 0:12:10.400 --> 0:12:13.080 So right there, right there is the sweet spot where 0:12:13.080 --> 0:12:18.400 they're starting to throw dollar coupon seventeen year old got it. Yeah, 0:12:18.400 --> 0:12:21.440 well it's different from the reach, the target, the safety list. 0:12:21.559 --> 0:12:25.560 That sound like you know that very well right now, Carol, 0:12:25.720 --> 0:12:28.679 Oh my god, do I know it well? Um? Ron, 0:12:28.800 --> 0:12:31.640 thank you so much, really appreciate it. Ron Labor is 0:12:31.720 --> 0:12:34.280 the Your Money columnist over the New York Times. His 0:12:34.360 --> 0:12:36.720 new book, The Price You Pay for College, an entirely 0:12:36.720 --> 0:12:39.319 new roadmap for the biggest financial decision your family will 0:12:39.360 --> 0:12:44.480 ever make. School is three or four times what it 0:12:44.640 --> 0:12:47.920 costs me. Yeah, and like you know what I'm saving 0:12:48.000 --> 0:12:50.520 right now for a little rlow the two year old 0:12:51.240 --> 0:12:57.240 aam just designed something a child actors, so that's also worked.