Ep 123: Colleges, Universities, & What You’re Really Paying For

Episode Summary

Ron Lieber, author of The Price You Pay For College and NYT Your Money columnist, clues us in on what marketing tricks your teen’s favorite colleges might be using and how to get the best deal.

Show NotesInterview TranscriptGuest Bio

Full Show Notes

With prices skyrocketing and competition for admission growing more intense every year, applying to college can be a major source of stress for both parents and teens! It’s enormously difficult to decide which school offers the right dorms, classes, and clubs. On top of all that, you and your student have to figure out how you’re going to foot the bill.

Although families have access to resources like the FAFSA and other financial aid, it can be incredibly difficult to figure out how it all works. Every school offers something different, and half the time it seems like they tack on costs out of nowhere! It can feel like you’re being hoodwinked when you’re just trying to give your teen a brighter future.

To get to the bottom of all the college cost craziness, we’re talking to Ron Lieber, author of The Price You Pay For College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make. Ron is a business expert, and writes the wildly popular “Your Money” column in New York Times. His expertise about money and parenting have made a twice best-selling author!

Today, he and I are discussing some questionable methods colleges use to entice students into attending. We’re also breaking down the questions teens should be asking themselves when shopping for schools, and a few key things they should be wary about when embarking on their university journey.

Why You Should Question How Colleges Market Themselves

College is expensive….like, really expensive. Luckily, there are few ways parents can pay, though they’re not always easy to navigate. Some students get scholarships based on merit, because they have exhibited academic skill or another impressive quality. While this may seem like a life saver, most colleges have some tricks up their sleeve when it comes to scholarships.

Ron breaks down the deceptive nature of many of these merit based aid programs. While they started as a way for schools to bring smarter students to campus at a lower cost, they’ve lost their original, intended purpose, says Ron. It’s become more and more common for schools to offer them to the majority of students, often even hiking up the sticker price of tuition to make it seem as though they’re handing families a discount. 

In fact, there’s a billion dollar industry behind these discounts, with colleges finding the exact amount of financial aid to offer students to ensure that they attend the institution–but not a penny more. Ron and I talk about how colleges sometimes even measure how often applicants visit their websites or how quickly teens open their emails, to see how badly students want to attend. If teens seem eager to go to a particular place, schools can use this information to extract more money out of these hopeful students. 

In the episode, Ron gets into why all these tricky marketing schemes came into being, and ways you can get around them. When it comes to picking a school, there’s more than just the price to think about, however. In addition to talking about financial aid, Ron shares the questions he thinks every student should be asking themselves before they choose a college.

Finding the College that Fits

Selecting a scholarly institution is no easy task. Ron suggests that teens ask themselves what they really want out of college. He sorts students into three different categories depending on what kind of experience they prioritize. Some want to get practical knowledge, acquiring a degree or license with the main purpose of gainful employment. Others want to find their pack, the people who truly get them. Some go away to school to have a unique learning experience and expand their mind.

What kids really need to do is understand what it is exactly they’re going to college for. If they have a notion locked down, they’ll know what questions to ask their tour guides. Ron puts this idea in terms of examining a college’s dorm design, something students often don’t consider. If your kid wants to meet as many people as possible, dorms with more closed off quarters are likely not the right choice. If they want to engage in a lot of quiet studying, it might  be in their best interest to look into a school where dorms are more spread out.

For students who are looking to learn as much as possible, Ron suggests seeking out a college with small class sizes. Research shows that these institutions have a lot of benefits, with students getting more individual attention and forming strong mentorships with their professors. Ron explains that this model works especially well for women and people of color.

In the episode, Ron lays out some metrics teens can use to pit different colleges against each other when deciding where to apply to and attend. He shares how you and your teen can decide if it’s worth it to fork over extra cash for a university with a higher rate of alumni success. The college search can also be full of hidden red flags, however. In addition to things students should look for in a school, there are also things they should look out for.

What to Avoid When Applying

There are a few things Ron believes families should be wary of when trying to settle on a university. Ron explains how a lot of colleges have a large number of adjunct professors, which are grad students or aspiring professors who don’t work at the university full time. He warns that adjunct professors may have less time for students and less dedication to the school, as their ties to the university are tenuous.

Ron also emphasises the need to make sure schools champion diversity. By this he means not just diversity in race, religion, and sexual orientation, but also diversity of thought. When touring a school, he suggests asking the tour guide to recall a time they had heated discussion with someone, either in class or out of class. If the tour guide can’t recall a story, that’s a sign that the school doesn’t encourage vigorous thought, and instead discourages dissent.

Is your teen interested in joining a school’s honors program? Ron encourages them to be cautious. Only about 20 % of people who start college in an honors program actually remain in it until they graduate. He also warns that most honors programs show an incredible lack of diversity. While honors programs started with good intentions, they’ve become another way school’s market themselves to empty student’s pockets.

There are lots of things to consider when picking a school, but Ron is here to break down and simplify the process. 

In the Episode…

It was so enjoyable to sit down with Ron this week and shed some light on the college selection process. In addition to the topics above, we touch on:

  • Why Ron thinks all students should take a gap year
  • How you can talk to kids about college finances
  • Why the top 45 colleges are so sought after
  • How having the wrong roommate can seriously wreck your college experience

Although you and your teen might be stressed about selecting a school, there are things you can do to make the whole process easier. By understanding why your student is going to college, you’ll know what to look for and how much you’re willing to spend on it. See you next week!

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Complete Interview Transcript

Andy: You have been writing about money and parenting for a long time and this new book looks like it’s been a lot of work to research. You talk about how you went around and interviewed presidents from colleges all over the place. The title is The Price You Pay For College. What got you interested in this topic? What made you decide this was the next book to write?

Ron: Well, it has to go back to my own teenage years and what happened then was my parents were doing pretty well for themselves and then a couple of things happened to kind of blow things skyward. My parents split up, that was its own financial calamity and then one of my parents lost their job and did not really earn much income to speak of for two years. And so we were sort of thrown at the mercy of the financial aid gods, both in middle school and high school, for me and my siblings. But then we had to sort it out come college time. And my college counselor sent me to a guy, the guy, to see you in the Chicago land area if you were applying for financial aid and you needed some help. And we went up and saw this guy and it turned out he was the assistant director of Northwestern’s Financial Aid Department and he had this side hustle going on where you’d go up there and you’d pay him 50 bucks and he’d explain the whole blasted system to you.

Ron: And I know you can’t make this stuff up, right? So it was this revelation for me that there was this whole system out there, only a few grownups understood it, with a little bit of money, somebody would peel back the layers of the onion and you could beat the system, right? I applied to Amherst College, early decision, I got in. I got a fantastic financial aid offer. The Dean of Financial Aid there, Joe Paul Case, was an actual ordained minister. We literally referred to him as Saint Joe in our house, to this day he and I are still buds. He made sure I got to and through that place. And it was the beginning for me of a lifetime of understanding that there are grownups systems involving money, that they are made to be hacked and that maybe I could help people do it. And so that’s where it started, right? Eventually, I became a dad myself and started getting these questions, but that’s really where it began 35 years ago.

Andy: So one thing you write in here was that the Federal Government expects families to pay for college themselves, and when they talk about families, really they’re talking about parents. Why do you say that and what are the implications of that?

Ron: Well, so the financial aid system is incredibly complicated, but for those of us who are more than a handful of years out of college and have kids who are approaching the system ourselves, most of what we may remember about it has to do with need-based aid. Financial aid, grant money usually that you get that you don’t have to pay back. It’s based on what you have and what you make. And so there are two ways of calculating that, and it begins with the federal government’s formula and what the federal government does after you fill out this dreaded FAFSA form, is that it spits out something called an Expected Family Contribution. And if you break that phrase down into its component parts and analyze each word with great granularity, what you realize is that each of those words has incredible moral force and are absolutely imbued with values and value judgment, right?

Ron: This is an expectation. The federal government is expecting you. These expectations are great. They are not small. They are great, right? Family? Well, family doesn’t just mean the kid pays for it and works their way through which you can’t really do anymore at these prices. Family means parents. So you may think that the kids should be off on their own at 18, but the government is expecting you and counts you among the family members who is, in effect, obliged to pay up or cast the kid adrift. And then this notion of a contribution, as if it is a gift or a donation, I mean, it is those things, but it is also an investment. It can’t be anything else at these prices and we would all be much better off if we thought about it that way and shopped for it that way.

Andy: You mentioned the two different types of aid, the FAFSA is the need-based aid, but then there’s a lot in your book about merit aid. What is the difference between those and how does the merit aid work?

Ron: Well, I wish it was even that simple, but the need-based aid is itself bifurcated. So there’s the FAFSA, and the expected family contribution, which we talked about, and then a couple of hundred private universities and some publics too, will make you fill out a different form called the CSS profile, which has its own formula, which the schools then tweak themselves to give away their own money. And that’s just need-based aid. Now in the last 25 years or so, this other system has sort of emerged in parallel called Merit Aid and what that means at its essence, or in its simplest form, it means that if you are meritorious, regardless of your financial need, if there’s something about you that the school finds attractive, it may throw some grant money your way that you don’t have to pay back, maybe without you even applying for it, or maybe via a special one-time-only application that will make it easier for you to attend.

Ron: And again, when this all got started the big idea was, let’s go out and buy some students. That’s literally what they were thinking. Let’s go buy some students who would otherwise go to the Ivy League and let’s buy them for a 10 or $15,000 discount per year to get them to come to our place, to make our classrooms more lively and our campuses more electric and to help us boost our data that we report to US News so that we can go on, right?

Ron: So that’s kind of how it started. It was like some good competitive instincts and people just trying to make their schools better. But the problem with that is that once one school does it, then the competitor has to do it or they’re left behind, and within a decade or two nearly every private university, a lot of public’s too, outside of the 30 or 40 most selective are now doing it. And so it’s a sort of a spiral where everybody feels like they have to do it. And farther down the food chain, every single school is discounting and you’re sort of a sucker if you pay full price or at least you should know if you are one of the few and the not proud.

Andy: Yeah. How many, what does that look like in terms of on campus? How many people are paying the actual full price?

Ron: Well, it totally depends on the school. The school is generally not fond of explaining itself. If everybody gets a pony, they’re usually pretty good about saying that because then everybody feels good and everybody gets the pat on the head. But if it’s only five or 10 or 15% of the people who pay full price, it’s not really in the school’s interest to let families know that this goes on. So you’ve got to go diving into something called the common data set, which the schools do not advertise, but generally have a copy of on their website. So you got to go search for it in Google. And we dive in there, you will eventually be able to sort of parse the numbers and do some simple subtraction and kind of figure out where you stand. And I walk people through that in the book, it’s a little technical for a podcast, but it’s not that hard to figure out ultimately,

Andy: But, so I think that’s just interesting to think about is that it sounds really great merit aid, but a lot of it, really the idea of it is designed to lure students. And you write in here actually that there’s a study showing that if a scholarship has a name, then it’s more like the students are more likely to come to that school and it makes you feel good to know that your kid is getting this scholarship. And also there’s part of the thing going on where they actually kind of increase the sticker price so that they can give away these discounts and make you feel like you’re getting a good deal by coming there or something.

Ron: Yeah. I mean, we should call this what it is, it’s marketing, right? And there’s no shame in marketing. There’s no shame in commercial actors trying to manipulate the emotions of the people who are making the decisions. That’s just part of life in a capitalist economy. But the people don’t really understand that that’s what they’re signing up for when they go through this sort of bidding and buying process for an undergraduate education. And what I fear that they are also not in touch with is just how deeply this decision-making process preys on some dangerous emotions that it almost automatically evokes, right? This is maybe the biggest check you will ever write. It involves your offspring or the kids that you have taken in. So of course that complex due of money and feelings is going to lead to potentially some flawed decision-making if you are not deeply in touch with and emotionally honest about the questions that it is raising in your conscious or subconscious mind.

Andy: Do you write about how complicated it is, how there’s an entire billion-dollar industry of consultants who are helping colleges figure out how much aid to offer each student? So the idea is to offer you just enough aid that you’ll accept and you’ll come to their school, but not a dollar more than that because then that’s wasted money if the whole point of the aid is to entice you to come to the school.

Andy: So something that I found really interesting in your book is you talk about how they all are using more and more kind of sneaky metrics to determine these kinds of things, including how fast you open the emails from the college, how engaged you seem, how often you’re visiting their website, stuff like that. And they can start to get an idea of how badly you want to come there and how much money they need to give you.

Andy: Or, like you say, if you’re applying in the early decision process, then that means that you are basically agreeing that if you get accepted there, you’ll come. So maybe they don’t have to offer you as much aid in that case, because they know that you’re going to come no matter what, if they accept you, I guess, playing hard to get or something.

Ron: I mean, it’s really interesting to hear you describe it as “sneaky metrics,” because what should we really expect out of something that can cost over $300,000 in the marketplace? Right? I mean, we should probably expect some marketing in a marketplace, marketing involves metrics. Some metrics are sneaky and can potentially be underhanded, but should we be surprised by that? I don’t know. Right? I mean, in, in the world of every day for-profit commercial activity, you’re trying to find the most engaged consumer and make them an offer that they can’t refuse that will not cause you to be unprofitable. And should we expect, even in the nominally non-profit world of supply and undergraduate educations that things would be any different? I don’t know, maybe a generation ago when things were a little more genteel and a little less competitive, maybe we could expect that, but I don’t actually think it’s reasonable to expect that anymore.

Ron: Then again, I am not at all surprised to hear you describe it that way, because it sure feels sneaky if people are looking over our teenager’s shoulders and measuring how often they’re interacting with a website and potentially using that data to decide how much money to throw at them, right?

Andy: Yeah, exactly. It’s like, Ooh, wow, this person seems like they really want it so I don’t think we have to give them as much and they kind of it’s called merit aid, but really that makes it feel like it has nothing to do with merit at all. And yeah, it makes it feel somewhat manipulative, I guess.

Ron: Yeah. I mean, and in fairness, it’s not that it has nothing to do with merit. There is almost always sometimes a lot of merit involved, but there is more to it than that. And the less selective the school, the more it becomes just kind of outright marketing and pricing and sales funnel strategy and much less about trying to get the best possible well-rounded class filled with interesting diverse individuals to make a place come to life.

Andy: How do you think that this is all going to change in the aftermath of the coronavirus?

Ron: I wish it were easier to predict because we don’t know how that story ends. This book was originally supposed to come out in August of 2020, and we press the pause button by about six months thinking that by August 2020, this would all be over and we could tie the story up in a tidy bow and figure out what there was to learn from it. And instead, it is ongoing, and it is not yet clear guaranteed that September 2021 will be a normal autumn semester, right? So it is hard to say. For better, for worse, I think most of the readers of this book, and most of my readers in The New York Times, are people who are aiming at the three or 400 most selective colleges and universities in America. And I sincerely doubt that any of them are going to go out of business as a result of this.

Ron: Some of them have fewer students than they normally do. All of them lost a bunch of housing and room and board fees that they needed to refund in the spring of 2020, that hurt, right? And there are costs associated with making campuses safe. But the thing that we’ve learned, right, is that people, families who pay, and the students who attend desperately miss the residential component of the undergraduate experience. And even if they are living on campus now they are doing so under extremely compromised circumstances and this deprivation, this forced deprivation of normality, is causing people to crave what just a year or two ago, people were questioning the value of, that much more.

Ron: So I don’t think this is going to cause a wholesale march away from the traditional residential undergraduate experience towards some brave new online Zoom world, because turns out, people don’t really like learning that way all that much, at least in this market. There’s a whole different market of millions and millions of mid-career adults who never got their bachelor’s degrees and sign on to Southern New Hampshire University or Arizona State and derive a lot of value from that experience. But that’s not the experience that I am focusing on here.

Andy: Yeah. I feel like I hear so many people with college-age kids talking about that, just like, “Ah, how hard it is for them this year and how bad I feel for them that they don’t get to go to campus and have the real college experience.” And I think that is such a big part, as you write in here, if the only important thing about college was the degree, then it wouldn’t matter at all, but it does matter and everyone feels it. That’s just doesn’t feel like college.

Ron: Right, but we should not let that point you made go unremarked upon because part of the point of the exercise here and being a good consumer of undergraduate education is being clear as day upfront about precisely what it is that you are shopping for. And there’s no right answer to the question. And I make no judgment about people who do it one way or the other. But, you mentioned this notion of like the degree or the credential, and that’s a great reason to go to college. Maybe you’re trying to vault a couple rungs up the social class ladder because your parents didn’t go or they were working-class or low income and you want to get that accounting degree or become a nurse or become a teacher and grab on to middle-class life, right?

Ron: And that’s a great reason to go, but there are other reasons to go, right? You can go because you value the education more than anything. You want your brain taken apart by expert instructors and then reassembled piece by piece to make it larger and better and to turn you into a happier, more well adjusted person as a result of that learning, that’s a great reason to go to school. You may want to go to school because you were never able to find your people in your hometown or in your high school for any number of reasons, right? And you’re going to college seeking kinship, right? The people who will lift you up at your wedding and hold your casket and invest in your startup somewhere along the way. And also the mentors, the grownups, the clergy members, the deans like St. Joe Paul Case in the financial aid office who took care of me, the professors, certainly who will be good influences and help you through life, right?

Ron: And so any of those reasons are great reasons to go. And I’m fine with anyone who’s chasing one to the exclusion of the other two, but you have to be clear on why you’re going, right? And for the people who have had the last two semesters, radically changed by the virus, the people who are only seeking their credentials are probably cool with this, because they’re still going to get that credential, but the people seeking kinship are not getting it on Zoom. And the people seeking to have their minds grown and their minds blown, they’re not getting it on Zoom either, and I get why they are frustrated.

Andy: I think that’s so important, getting clear about what you are looking for and you point out some really good questions in here and some awesome studies and statistics and something that you were writing about was in terms of the kinship and finding friends that are long-term friends. Finding colleges where people live on campus and even just like the arrangement of the dorms are not arranged in such a way where students are so separated from each other. And if you can get clear ahead of time on what you’re looking for, then you can understand when you do make those tours on campus and when you were asking questions of other students that are on campus, what to hone in on and what to look for. And I think that’s so helpful because otherwise, it’s overwhelming. You get all this information and you see all this stuff, but it’s how do you decide which one’s better than another one? Well, it starts with knowing what you want.

Ron: Exactly. And I’m glad you mentioned the dorms, right? Because in just about every consumer decision, and certainly one that’s this expensive, one of the most under-recognized questions or issues that I’ve seen throughout my career writing about all sorts of things is that people often underestimate the importance of really good design, right? And so you think about well, what is the design for living as an undergraduate? What is the unit of domestic reference as a first-year student? And the unit is the dorm room, right? So who is going to live in there with you? How has the process of finding someone to live with you if you won’t be living alone designed, and how is the physical space itself designed? Not just in terms of amenities, although that’s important too, or it can’t be to some families, but, are you going to be living on a single long hallway with 10 or 15 or 20 doors facing out where everybody’s using the same bathroom? Now that doesn’t sound ideal during a pandemic, but presumably, that’s going to be over in a year or so.

Ron: And so if the big ideas do increase the odds of high contact and finding your people, there’s a pretty good chance if there’s 30 people on a hall, like three or five, or maybe even 12 of them are going to be your people. And if you end up in a first-year dorm where it’s a labyrinth and a bunch of people live behind secondary doors with their own little rooms and suites that are kind of closed off to the hallway and everybody’s got their own bathroom, that’s a different thing, right? And some people may want that. Maybe that’s good for an introvert as opposed to an extrovert, right? But you need to sort of ask these questions, right? Because again, if the point of the exercise is kinship and you’re being asked to pay a whole lot of money, how are you going to increase your odds of getting what you’re paying for and then some?

Andy: Yeah, and if it’s the kind of campus where everyone moved off campus the second year, or whatever. Doesn’t spend that much time on campus, then you really are just coming and going to your classes and leaving and there’re just less of those opportunities to run into people and meet people. And that is kind of why there’re so many relationships that start in college because you’re kind of forced into proximity with each other and to be together. But certain colleges do that better than others. And being aware of that, I think, is important.

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About Ron Lieber

Ron Lieber is the author of The Price You Pay For College and The Opposite of Spoiled. His previous books include Upstart Start-Ups! and Taking Time Off.

Ron has been the “Your Money” columnist for The New York Times since 2008. Previously, he wrote the “Green Thumb” personal finance column for The Wall Street Journal and was part of the startup team at the paper’s Personal Journal section. He also contributed articles to Fast Company and Fortune. Ron’s expertise in the realm of personal finance has been featured on major media outlets including Good Morning America (ABC), CNBC, Morning Edition (NPR), to name a few. 

Ron resides in Brooklyn with his wife and two daughters.

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