Support for this podcast and the following message come from E-Trade, you want to invest your money, but there's one problem you're not sure where to begin. Luckily, there's ETrade, who offers more than just trading. E-Trade simplifies investing without the financial jargon and has the people to offer guidance and support to make your money work hard for you. For more information, visit E-Trade, Dotcom, Zwai, ETrade Securities LLC member FINRA Civic Dalan.
You have Hsueh. Hey, Sway, listeners, welcome to a bonus episode with New York Times columnist and your money guy, Ron Lieber. We're here to talk about the astronomical cost of college and about my latest interview with Oberlin College President Carmen Twillie. Amber, if you haven't heard that episode, you're missing out. So go back and listen. It's right behind this one in your podcast app anyway. Ron, hello. How are you doing? I am doing great.
How are you? Good.
I just paid for college, so not as great. So just say, you know, I have a kid at NYU, so let's start with you. You went to Amherst, class of nineteen ninety three. How much was the tuition then.
Full price was about twenty five thousand dollars all in back then. But I was on need based financial aid so my family did not pay that.
So, so that was, that was a relatively high price at the time. I graduated in nineteen eighty four and my tuition, my last year was about seventy five hundred dollars. It was super cheap. I remember writing checks, I wrote them myself for about eleven thousand ten thousand dollars. Let's talk about that because nowadays Georgetown costs seventy five thousand dollars a year including room and board. Let's talk about how college costs have increased, especially relative to family income in recent decades.
So at the lowest price, you know, it feels like it's gone to the moon, right? Amherst College, where I went from eighty nine to ninety three, it's now roughly tripled. But the most important thing for people to keep their eye on as consumers of higher education is what the net price is. And this is where it gets messy because it is very, very difficult as an everyday consumer or even a consumer of way above average intelligence to actually know ahead of time or predict what you're going to pay get depends on private versus public.
And even within the private realm, there are all these different segments of the market and it makes it very hard to know what the final cost will be.
So it's like buying a car. It's that it's all over the place now that it's not understandable to people.
Yeah, I think that's right. And one of the things that makes it even more confusing than buying a car, if you're going in to look at a Ford versus a Toyota versus versus a Lexus versus a Mercedes, you have a general sense of what the prices are going to be there. And you know that the discounts are probably not going to be that much more than five, 10, 12 percent off the list price with colleges. You have no idea there could be a six figure swing between the lowest price for a private college or university.
And what the net prices and it may have nothing to do with how much money you have. They want to look as if there is a lot of value there, that a high price signals high quality. And to the extent that you can get anyone to pay full price, you try to do it. And that's just good business.
Right. So umba acknowledge this problem. I think her exact quote was, if you want to see gnashing of teeth and wringing of hands, get a group of college presidents together and ask them about our prices. You just published this book, The Price You Pay for College, and that probably you had a similar effect on college presidents, correct?
Well, so this is the thing. What I tried to do with my reporting was to focus on the part of the market where people's ability to pay was increasingly clashing with their willingness to pay. And the problem that Oberlin has in Oberlin is not alone is that there are all sorts of people out there who may have the ability to write a seventy five thousand dollar check each year or to borrow to get there. But they are increasingly questioning whether they should do that for Oberlin, whereas they probably would for Harvard or even Georgetown.
But one thing I talked about is even though the sticker price at Oberlin is 75000, they're typical of a liberal arts college. So she was pointing out that most students are paying far less, more like 30 to 40000. They meet all need there because they have a large endowment. But the merit scholarships that they're doing explain why colleges are offering them. Exactly. Sure.
So if you're a school like Oberlin, you're in a tricky situation and you're trying to preserve the ability to collect full price from five or 10 or 15 or 30 percent of your population. But then you've got a whole bunch of people where the ability to pay has a mismatch with the willingness to do so. So consider those people affluent people. Right. What Oberlin hopes to do is to take that 75000 dollar list price and subtract, you know, twenty thousand dollars and to offer it to these affluent families as a scholarship.
Right. And so that allows you to feel very good about yourself. You've gotten a gold star as a parent. Your kid feels meritorious. They've gotten this surprise, you know, giant pile of money often, you know, via a text message notification. Everybody can run around town saying that their kid got money from this school. The discount is real. And then what Oberlin is able to do is use that fifty five thousand dollars that it gets from the family to cross subsidize a certain number of lower income students.
So it's not always the case that this so-called merit aid means that low income people do worse.
Are these effectively subsidies for rich kids because only certain people can afford to get the. Merit, correct, or do the things that make the resumes, the resumes so good? Yeah, look, I think it's totally fair to describe it as a subsidy for rich kids. There are all sorts of people whose household incomes are two hundred fifty thousand dollars or above who are getting these discounts. Now, another cynical way to describe it is to say, well, these these list prices aren't real.
Right? It's just all it's just all a marketing ploy to make anybody and everybody feel good about a coupon. And the fact of the matter is, is that sometimes schools will use merit aid to meet a financial need. Right. So why would they do that? Well, not because they're offering subsidies to rich kids, because these are for people who need the money. Right. They're doing it to make people feel good. People would much more rather be recognized for their academic worth than for the fact that they're short of funds.
Right. Right, right. So it's just another way that this is a this is a marketing ploy.
So what do you think the opportunity cost of this merit aid or this this kind of thinking is? What else could the schools be doing with that money?
So here's what we don't know and often can never know because we have to take the school's word for it. It's possible that these discounts for rich kids come at the expense of lower income people. But, you know, a question for a school like Oberlin is, does it need to offer merit aid given the market position it's in? I have every sympathy for the spot there. And then again, Franklin and Marshall in Pennsylvania, another very competitive state for private colleges and universities, less endowment per student than Oberlin has.
They managed to get rid of merit aid several years ago. And the their Pell Grant percentage has gone from like five percent to 20 percent. Pell grants go to the lowest income families. Right. So it is possible to make a change with the will to do so. And it's going to be interesting to see whether the president, Oberlin, is still relatively new, you know, has the will and desire to do that or feels like they're in a market position where they can.
So when you're thinking about this this idea of market position, you mentioned Franklin and Marshall. And then, of course, on the top there's the Harvard and Stanford's and Yale's talk about where these not over in particular, but all these schools in the market positions of schools these days.
Sure. I mean, this is the thing that's particularly difficult for parents to shop for because we all have our own built in impressions of how things might have looked a generation ago. And the fact of the matter is, is that it's a much more national market for students than it used to be.
Consumers are more aware of what's happening nationally and the schools that are available. And the schools are using all sorts of sophisticated marketing techniques and software to target kids who are farther and farther away, often by zip code. Zip code is a code for affluence. Right. So all of these schools and it's not just the private ones, some of the public schools are trying to attract out-of-state students to are using all this data to try to nationalize the market because they know it's gotten so competitive.
So talk a little bit about the machinery of certain schools versus others. So there are a handful of schools that have transformed themselves utterly using merit aid, using consultants, using technology. Three of the best examples are the University of Southern California, Tulane University, Northeastern University in Boston. These were schools that were second choices, safety schools, commuter institutions a generation ago. Now, the percentage of people that they accept are in the teens. So what do schools like this do to advance themselves?
They hire these consultants. The consultants come in with algorithms. The algorithms contain all sorts of data that these consulting firms have gathered about high schools, about the colleges themselves. They suck in ten years of data on who responded from what zip code, what kind of high school to what kind of discount offer in the past. Was it enough? Was it not enough? What kind of student, high school student was that person? Did the person who accepted the offer stay at the university or transfer out?
So you've got a bunch of PhDs running around just sucking in all manner of data, including how your kid may be responding to email and text message commands that are coming from the university. That was crazy.
My kid was going to school like Tulane. Tulane was a good example. We got so much stuff. I got stuff. He got stuff, mailings, everything.
Yeah. So Tulane has done it exactly right from a business perspective. Right. They use this merit aid money to go out and buy really good students from far away using these discounts. And now they are way more selective and they've accrued a lot more prestige as a result. And a big part of it was because they use technology in a sophisticated way in the background to kind of increase their their pool of potential customers. And so families in many instances just have no idea that this is going on and that the merit aid offers are, in fact, coming from a computer on the first pass, not from a human.
Well, not just Merete, but the idea of getting in this idea of scarcity, of creating a feeling of scarcity and insecurity among teenagers, essentially.
Sure. I mean, one way you do do better in these rankings is that you basically increase your denominate. Or you increase your selectivity by getting more applications and what's the best way to get more applications, do more solicitation. What's the best way to do more solicitation? Get a piece of software to tell you from what zip codes and what kinds of students are most likely to apply, particularly if you give them an incentive. Right? Maybe. Maybe it's a fee waiver.
You don't have to pay the application fee or you say, you know, if you apply and you get in, we guarantee you you will get a ten thousand dollar discount each year. So why not take a flier on that? And so, you know, it may feel like you're buying a lottery ticket now. And it is true that the odds on paper are worse than they used to be. But it also may be true that there are more unqualified candidates applying, particularly this year.
Now that so many schools are test optional, all sorts of kids are taking a flyer who probably have no chance of getting it.
I mean, what are good grades actually worth? Is that like six figures or what? Well, so it is absolutely the case that your academic record can be worth a six figure merit aid discount over four years at a private institution. But again, the thing that's so messy about this for we parents, for US consumers, is that it's very hard to predict it. It's not in their interest to be transparent. They don't want people to know that it's a relatively small number of people paying full price.
They don't want people to know what the average Joe Swisher, Kara Swisher is a chump. Well, you know, so I'm not going to call you a TV show. I don't I don't even think about it.
So you have a daughter in eighth or ninth grade right now. Have you spoken to her about this?
I feel like I don't want to say anything to my kids and going into 11th grade next year and 10th grade right now. Have you spoken? I just don't want to, but maybe I should.
We have spoken to her and here's why we don't get to control what kind of information comes at them if we are not locking them up in their rooms. She's already seen Instagram ads from colleges and she's in ninth grade when she takes the PSAT. Assuming she does and she doesn't check off the don't send me mail thing, she'll be bombarded with hundreds and hundreds and hundreds of incoming pieces of marketing. And some of them, like the one from Clark University in Worcester, Massachusetts, will have subject headings like Show Me the Money.
Right. So she's going to find out one way or the other that this discounting goes on for people with good grades. And we felt like the lesser of two evils was to at least let her know gently how this works. It's not to put pressure on her, not to say you absolutely have to get, you know, a three point nine grade point average or we won't pay for X or Y school.
We just felt like it was only fair for her to know what kind of system she was operating in, because the alternative is for her to find out about it when she's a junior senior, when it's too late to do anything about it. And then she feels like we didn't trust her with the information or we didn't think she could handle it. I don't think it's pressure. I don't want to say anything about it. Well, so here's the way to put it.
Yeah. Tell me how to put it where. I mean, here's the way to put it, where it doesn't involve pressure. I mean, you can just say if this is true, right? Look, we do not have the ability to pay full price for every private college or university in America. Or you could say we have the ability to pay full price, but we don't think the value is there. And you're going to need to earn merit aid if you want to go to some of these schools that would otherwise cost three hundred thousand dollars.
And we don't want you to feel that pressure because we or I if it's if it's sole parent, know that if you go to our state institution, the flagship state university, or if you go to a private college where you will qualify for a discount, maybe it's not as selective as some of these other schools. We know that there are amazing opportunities available in all of these places. That's what's great about the American system. There's a lot of choice and it dozens, maybe hundreds of schools.
Just about every kid can thrive. It's not all that far off, you know, from the sex talk or the drug stock. Right. I mean, this is just like an unfortunate part of life. I don't I'd like those so much better than the college talk. I don't even want to put any pressure on my kid about that. So what's the impact of bidding wars on price inflation and the college debt crisis? Because that's the other part of this this college debt crisis that, you know, politicians talk about, everybody talks about.
So what kind of crisis do we have here? Right. I mean, I guess I would argue taking a step back that the thing that's so horrifying about what's happening right now is that we've got something like one point seven trillion dollars in student loan debt. Not all of that is from undergraduates, but a lot of it is. Right. So we have conducted a decades long experiment, one of the biggest we've ever conducted in American economics, using teenagers as guinea pigs.
Right. That is completely messed up. So if we are going to have a national conversation around so-called cancellation or so-called forgiveness, both those terms are loaded. Politically, we should remind ourselves that if we are going to cancel some debt, it's because we are admitting as a nation that this was a really dumb. Thing to do to children? Yes. So to me, to me, that's where the conversation starts. Now, if you want to break it down further, the fact of the matter is, is that people who get through college and get that degree and if they only borrow the 30 or so thousand dollars that they're allowed to borrow from the federal government, most instances they're going to be all right.
They can make those payments. And there are income driven repayment programs where they're going to be fine. The people that I worry about are not the people with medical school debt or vet school debt. They were grown ups. They knew what they were doing. I worry much more about the people who went to for profit schools and dropped out or didn't get what they paid for. I worried about people who who had to leave school because they didn't have enough money and now they've got the debt, but they don't have the degree and the income that comes with it.
That's the worst of both worlds. And when you hear the Biden administration talking about forgiving or canceling ten thousand dollars in debt, turns out that a lot of people in trouble in default have had their credit wrecked. They have less than ten thousand dollars in debt. So you wipe that amount away and you solve the credit problems for all those folks and get rid of that stuff that's hanging over their head. So that's the policy argument for doing that is just simple.
Not a lot of administrative burden, no means test. And we solve the problem for a lot of people who have very low income.
Can there ever be a total price reset? Some schools have tried to do a reset because they said to themselves, well, all this hocus pocus is ridiculous, right? We can have a list price of sixty two thousand dollars. But if nobody's paying it, why are we bothering? We're probably scaring away a bunch of people who could actually afford it. Right. So they try that. And what ends up happening is that, you know, applications go up for a couple of years, but they're still having to give away discounts to get to a match of the net price of the institutions that they still compete with who haven't done the reset.
And so, you know, it's very difficult to completely blow this up without a whole lot of collusion. And now we remember how much the Trump administration hated higher education. But the last time we got even an inkling and it was really a joke, right? The last time a college president even stepped forward and suggested some kind of collective action, the Obama administration antitrust department was all over that. Right. So, yeah, you can't collude here to fix this.
Well, Umba talked about Arawa, right? This idea of Arawa return on investment of a college education. You're a money guy. What is the actual ROIC of college now?
Yeah. So right. Define return. Right. So if we're talking about dollars only, then, you know, on average you get roughly a million bucks an extra income, you know, if you go to college versus if you don't. But of course, all of our kids are above average. Right. And so we tell ourselves all sorts of stories about whatever outsize economic return will come. But what about the other return? All right. So what is the return on friendship?
How many of them will still be your LinkedIn connections 20 years from now when you're trying to start a company or you're out on the street trying to find new gig? What about the return on happiness that comes from being deeply engaged, like totally in the flow in a topic that you love, in a classroom of small size, where you have access to professors who will become mentors and will shape and form your brain and your soul for four undergraduate years.
We can't put a price tag on that.
And yet covid, which changes everything because I'm paying for school right now. So let me just ask you, do you buy Scott Galloway's theory that right now college should be the cost of a Netflix subscription?
Yeah, I mean, Scott's right and he's wrong. These schools should not be charging what they're charging for the experience they're delivering. And obviously, they're not choosing to deliver this experience right now. But then again, just about all of them do not have the ability to, you know, cut the price by two thirds. And and Scott knows that. Right. He's being provocative to be provocative. But if I'm a parent, if I'm you, I don't know that I'm writing that check right now.
My very first book more than 20 years ago was all about gap years and why they're good thing to do. And I looked at the people that my co-author and I profiled and at least half of those experiences that people had during their gap years, 25 years ago are things that you could still do during the coronavirus.
I wish I took a gap year right now, Ron, I want to get your life. What would you have done in your gap year if you took one?
You did not take one, correct.
So my best friend and I both got into Amherst College on the same day in December of nineteen eighty eight, and he took two years off and then he joined me at college. So he was a he was a freshman when I was a junior and he milked more out of that place in two months than I had been able to in my first two years. It was incredible. And science, real PhD conducted science has since proven that people take gap years, get better grades and people who don't.
So if you're a parent who wants their kid to get better grades, have them take a gap year. Right. It's just it's a slam dunk. So what would I have done? I would have wanted to see more of the world. I would have worked for for nine months, and I would have put half that money away for college and I would have taken the other half and purchased Asia on a shoestring. Right now. I just would have taken off.
Oh, that's interesting. I never even considered it. I went right. From college to graduate school to working, it's crazy, I'm going to take at some point, I'm just going to disappear, Ron, I'm going to take a gap life like at the end of my life. You'll never see me again. I'll be in a hut in the forest or something like that anyway, because we're not in a gap year. We must go to work.
Ron, thank you for doing this. For those of you listening, go read Ron Lieber, his new book, The Price You Pay for College, which is a lot.
Read his riveting piece about the 20 percent off coupon from Bed Bath Beyond to an email him with all your money questions, all of them. He will answer every single money question. You have so flooded him with money questions because he went to college and he can answer and he's a smart fellow. Anyway, thanks, Ron, so much. It was a pleasure. Thank you. OK, bye.
Once again, if you're not subscribed to sway, go do that right now. I mean it. Do it now or I'll send you to college. Next episode is on Monday until that.