Bogleheads® Speaker Series – Ferri with Lieber

00:00:00.000 | So with no further ado, let's welcome Ron Lieber.

00:00:05.920 | Welcome to the Vogelhead Speaker Series, Ron.

00:00:09.260 | Thank you, Rick.

00:00:10.260 | It is an honor here to be among, you know, sort of my fellow personal finance nerds.

00:00:15.040 | I know there are few people, you know, living and walking and breathing in the United States

00:00:22.120 | or in the world who care more about beating the system, winning the details, and getting

00:00:29.640 | it right than this crew.

00:00:31.920 | And it's a special honor to be here with Mr. Asset Allocation himself doing the grilling

00:00:37.120 | for the next 60 minutes.

00:00:39.200 | So I look forward to it.

00:00:40.840 | Lay it on me.

00:00:42.160 | Well, Ron, we'll start out with you.

00:00:47.660 | Over the past decade, your writing has shifted to focus on family finances, but particularly

00:00:54.080 | raising children, teaching children about money, and now sending those children to college.

00:00:59.400 | So I think I can guess this, but what sparked your interest in doing a book on the price

00:01:04.480 | you paid for college?

00:01:06.200 | Sure.

00:01:07.200 | Well, some of this is born of my own personal experience.

00:01:11.640 | I grew up in Chicago.

00:01:13.800 | You know, my family was well off enough to, you know, afford three private school tuitions,

00:01:20.400 | you know, back in the day in the '70s and '80s when that didn't cost quite as much as

00:01:24.200 | it does today.

00:01:27.080 | And I had a couple things happen in there that kind of changed everything for me.

00:01:31.960 | So my parents split up.

00:01:33.440 | If any of you are divorced or the children are divorced, you know that that is a calamitous

00:01:38.080 | financial event among others, right?

00:01:40.360 | You take one household, you turn it into two, there are just going to be more expenses.

00:01:45.080 | And then right about the same time, my father, my late father, lost his job, and he did not

00:01:53.280 | earn, you know, much income to speak of for the next couple of years, except through some

00:01:58.080 | occasional consulting jobs.

00:02:00.080 | And it was about a decade, really, until my family was back to where it had been financially.

00:02:05.120 | So right away, we were sort of thrust into the, you know, private school financial aid

00:02:09.680 | system for K-12, such as it exists.

00:02:12.320 | You know, it basically consisted of a board of directors at our school in Chicago deciding

00:02:17.080 | whether the leaver kids were going to be evicted for lack of ability to pay.

00:02:21.040 | And thank God we weren't.

00:02:22.500 | It's still the most generous thing that anybody's ever done for me.

00:02:25.920 | And those kids who I grew up with, you know, became my family and are still my closest

00:02:29.880 | friends to this day.

00:02:31.920 | So I got to stay there at the Francis Barker School.

00:02:34.640 | But when it came time to apply to college, we did not have enough money for the places

00:02:41.040 | that I wanted to attend.

00:02:43.000 | Luckily, our college counselor there knew the name of a guy to see, the guy in the Chicagoland

00:02:50.760 | area who you would go to for help with applying for financial aid.

00:02:56.280 | And we called him up.

00:02:57.280 | He gave us an address.

00:02:58.280 | He said we were to, you know, show up at 5 p.m. the following Tuesday at this place in

00:03:02.240 | Evanston.

00:03:03.760 | And we were going to, you know, we're supposed to bring him $50 in cash.

00:03:06.640 | And he said to go through the side door.

00:03:12.520 | So we thought, OK.

00:03:13.520 | And we show up at this address.

00:03:15.200 | And it turns out it's the Office of Financial Aid at Northwestern University.

00:03:20.120 | And it turns out that we were there to see the assistant director who had this incredible

00:03:24.360 | side hustle going on where every day during the fall at 5 p.m. he would usher in these

00:03:29.620 | needy families and you would pay him a little money, which he presumably would not report

00:03:33.640 | to the IRS or certainly to his employer.

00:03:36.760 | And then he would proceed to explain to you all of the secrets of the financial aid system.

00:03:41.560 | And it turned out that this guy knew exactly what he was talking about.

00:03:44.260 | And I got into Amherst College early decision.

00:03:46.200 | I got a great financial aid package.

00:03:49.000 | And I learned a couple of important things from that, namely that, you know, the grown

00:03:54.800 | up world was filled just chock full of complex systems involving money.

00:04:00.140 | And they were totally made to be hacked.

00:04:02.000 | He wasn't encouraging us to break the law.

00:04:05.800 | But there was this guy out there who knew the answers.

00:04:08.720 | And for very little money, you know, we could get a hold of him and he could tell us what

00:04:12.960 | to do.

00:04:14.600 | That lesson stayed with me.

00:04:16.920 | So it's not any big surprise, really, that I grew up to be the person whose beat is beating

00:04:22.960 | the system in the newspaper.

00:04:24.840 | That's always the way that I've thought of my personal finance work at The Wall Street

00:04:28.080 | Journal and now at the New York Times, as a part of that.

00:04:33.720 | But basically anything and everything that hits you in the wallet, you know, particularly

00:04:37.960 | items that have large costs or large potential costs and that involve a lot of emotions and

00:04:42.640 | feelings are the things that I care the most about.

00:04:47.000 | So of course, when I became a dad in 2005 for the first time, I now have two kids, a

00:04:51.960 | 15 year old and a five year old, I became a little bit obsessed with 529 plans.

00:04:56.920 | Back then I was at The Wall Street Journal and there was still a fair bit to say about,

00:05:01.080 | you know, the lousy investment choices and the high fees and, you know, the various limitations

00:05:07.120 | and the complexity.

00:05:09.160 | As most of the people on this call probably know, we have largely, although not completely,

00:05:13.480 | solved for the, you know, generalized mediocrity of these 529 plans.

00:05:17.440 | So, you know, at a certain point I moved on in my writing to write about how to pay for

00:05:24.600 | college instead of how to save for college, because we were starting to hear about all

00:05:28.320 | these people coming out of undergraduate with just, you know, piles of student loans, particularly,

00:05:34.800 | you know, 15 years ago when you could still get these so-called private loans, not the

00:05:39.240 | federal loans that are capped, but private loans without any adult cosign.

00:05:46.640 | So I started, you know, getting into that area and I'm still writing, you know, sort

00:05:50.200 | of sporadically about those very complex systems involving money that we have not yet solved

00:05:55.080 | for in The New York Times.

00:05:57.620 | But what started to happen as time went on is that I would hear from readers and from,

00:06:02.240 | you know, colleagues and friends who were super confused, not so much about how to save

00:06:09.160 | and not so much about how to pay.

00:06:12.800 | They were asking value questions.

00:06:14.520 | They would come to me and they'd say, "Ron, you know, my kid, you know, got into the University

00:06:19.940 | of Illinois at Champaign-Urbana and that's going to be maybe $125,000 because we don't

00:06:25.160 | qualify for any need-based aid.

00:06:27.280 | My kid also got into Kenyon College because they're interested in English being a writer

00:06:31.360 | and that's a really great small liberal arts college in Ohio.

00:06:34.680 | And they gave us a bunch of discounts even though we don't qualify for any need-based

00:06:40.000 | financial aid.

00:06:41.000 | That's going to be $200,000.

00:06:42.340 | And then my kid shot the lights out and got into Northwestern, right?

00:06:45.040 | So that's going to be $300,000.

00:06:48.720 | Where in your, you know, library of big data sets that you keep track of over there is

00:06:54.680 | the data set that tells me why, you know, Northwestern is $200,000 better than University

00:07:00.080 | of Illinois.

00:07:01.080 | And we're going to get into that.

00:07:02.080 | We're going to get into that.

00:07:03.080 | Yeah.

00:07:04.080 | And I don't have that, right?

00:07:05.760 | So I thought, wow, I need to start thinking about value.

00:07:10.720 | I need to start thinking about what to pay for college, too.

00:07:15.240 | And so that was sort of my journey to becoming obsessed with, you know, the college question.

00:07:20.120 | It was from personal experience as a student, as a middle-income student.

00:07:25.040 | It was from personal experience as an investor with one and then two kids living in New York

00:07:29.680 | City, a high cost area.

00:07:31.680 | And then it was from professional experience with this like avalanche of incredibly confused

00:07:36.280 | people asking questions about value that I did not know how to answer.

00:07:41.400 | Well your book starts with a discussion that contrasts the advertised cost of college by

00:07:49.380 | those institutions with the price of college.

00:07:53.600 | So I'm going to show a chart.

00:07:56.560 | And this chart is the price of the cost of college from 1980 through 2000.

00:08:06.720 | Now 1980 is a really important period, date for me, because it's when I graduated college.

00:08:12.260 | And I went back and I looked, I actually paid room and board, tuition, everything else $10,000

00:08:19.920 | for a four-year degree at the University of Rhode Island.

00:08:23.120 | That's what it cost.

00:08:24.120 | Now this shows, this chart is showing the cost of college over the next 40 years going

00:08:31.480 | up by 1200%.

00:08:36.280 | And during that same period of time, the cost of inflation going up by 236.

00:08:43.560 | So here's what I did.

00:08:44.560 | I went back to my old alma mater, the University of Rhode Island, and I said, if I paid $10,000

00:08:53.440 | back in 1980, and it was the cost of inflation was 236%, I would pay $36,600 for the same

00:09:04.440 | education today.

00:09:07.080 | Turns out, yeah, turns out though, I actually looked at the data that I got off the administration

00:09:13.400 | of the website from the University of Rhode Island, and it came out exactly to $128,000.

00:09:21.960 | This chart is very accurate.

00:09:25.640 | Now my question to you, Ron, is why does this chart exist?

00:09:30.200 | What happened here?

00:09:31.800 | Yeah.

00:09:32.800 | So I guess let's start by making sure we label this chart correctly, right?

00:09:39.800 | Because what we were looking at there was list prices.

00:09:43.020 | And I assume at some point sooner rather than later in the hour, we'll get to net prices

00:09:47.080 | and discounts, right?

00:09:48.980 | But there are plenty of people who pay the list prices, particularly at public institutions

00:09:53.620 | like URI that don't have a lot of institutional aid.

00:09:59.940 | And if you're a good bogal head and you saved effectively, you may have so many assets and

00:10:07.740 | perhaps enough income to support those assets, you don't qualify for much need-based aid.

00:10:12.740 | And so you may well pay the list price.

00:10:14.660 | So let's talk about those list prices.

00:10:16.780 | First of all, let's consider a public institution like the one that you attended or any flagship

00:10:20.940 | state university.

00:10:22.980 | What's gone on there more than anything that's caused that line to be so steep is a decrease

00:10:33.060 | in the amount of subsidy that the state legislatures give to the schools, right?

00:10:38.780 | I mean, to the extent that the price of those institutions are, quote unquote, artificially

00:10:43.660 | low, that they don't cover the costs of actually maintaining the buildings and paying all the

00:10:48.140 | professors and providing programming for the students is because the state uses tax or

00:10:54.280 | other revenue and just hands it over to the university to keep tuition costs down, right?

00:11:00.080 | So back in the day, this was thought to be a useful enterprise, a good investment.

00:11:04.580 | A well-trained workforce grows up to be more productive, pays higher taxes because it's

00:11:09.580 | earning more, and that money just sort of comes back to the state and it gets a return

00:11:14.460 | on investment.

00:11:16.420 | But back in the last big recession in particular, 2007, 2008, 2009, 2010, these states were

00:11:24.180 | so hammered by a loss of tax revenue in that enormous recession back then that they had

00:11:33.500 | to make some difficult choices.

00:11:35.140 | And one really easy thing to do politically, right, is just to sort of stick it to the

00:11:41.980 | state university system, right, and force the chancellor and the board to make difficult

00:11:47.780 | decisions about whether they're going to raise prices or whether they're going to cut services

00:11:52.240 | or cut programs, right?

00:11:54.180 | And those schools felt like, well, we can raise prices because what it really means

00:11:58.160 | is that these students and these families will probably just have to borrow a little

00:12:02.100 | bit more, maybe $1,000 extra per year.

00:12:05.720 | They can afford it, right, because this was already a subsidized education in particular.

00:12:09.640 | But if that thinking continues to feed on itself over time, that's how you get a chart

00:12:15.120 | like this with public institutions.

00:12:17.820 | Now if you're looking at the chart for private institutions, it's a little bit more like

00:12:21.700 | this for a variety of reasons in the market that we can talk about.

00:12:28.100 | Still pretty steep, far outpacing inflation, but starting from a higher price, which is

00:12:34.100 | why the angle, the slope is not as high as it would be for publics.

00:12:38.260 | With the privates, we have a different problem going on there, shared somewhat with the publics.

00:12:46.060 | But the private institutions need to justify their higher prices with more faculty, better

00:12:52.940 | services, shinier buildings.

00:12:54.820 | They're in competition with the state university systems, right?

00:12:58.140 | But the other thing they have going on is that as time has gone on, both market demand

00:13:06.400 | and regulatory requirements have meant that these institutions have either needed to or

00:13:12.060 | felt like they really had no choice, but to add a whole bunch of administrators, right?

00:13:17.260 | We've got all sorts of new laws that require equality on the playing field for our daughters,

00:13:23.700 | right?

00:13:24.700 | Title IX.

00:13:25.940 | All sorts of regulations that speak to diversity and equal access in areas outside of gender.

00:13:34.400 | We have ever higher technology budgets at these institutions.

00:13:39.140 | There are parents who demand bigger and better career centers, right?

00:13:44.420 | Kids have become accustomed to living in a certain manner.

00:13:48.620 | And if your dorms don't have air conditioning, well, people may not choose your school, right?

00:13:53.660 | And so there are all these market pressures, regulatory pressures, which has led to there

00:13:58.220 | being a much higher number of administrators at these schools.

00:14:03.060 | Administrators don't come cheap.

00:14:04.380 | They're reasonably well-trained.

00:14:05.380 | They're experienced.

00:14:06.380 | And I think if you get right down to it, right, as a parent, if you've got a child who's going

00:14:14.180 | to college and they've got a medium-grade mental health challenge, right, you don't

00:14:20.020 | want a 23-year-old grad student working in the counseling center using your child as

00:14:25.180 | their guinea pig, right?

00:14:27.020 | You want a 43-year-old PhD psychologist working in the mental health center to take care of

00:14:33.100 | your precious child who you've pushed off into the world for the first time, right?

00:14:37.060 | And you multiply that times all sorts of different parents with all sorts of different needs.

00:14:41.940 | And pretty soon you have a lot more administrators than you used to.

00:14:45.340 | And that's got to be paid for some way.

00:14:47.300 | And for the private institutions, if they don't have a big endowment, that comes from

00:14:50.620 | tuition.

00:14:51.860 | So that's how the list price goes up there.

00:14:53.500 | I'll have another screen.

00:14:55.620 | And this one shows the difference for 2000-2021.

00:15:00.900 | Up on top is a two-year public college, basically a community college.

00:15:07.500 | And then you have your four-year college, public, 26,800, and then you have your four-year

00:15:13.300 | out-of-state, 43,000.

00:15:16.060 | This is all inclusive.

00:15:17.060 | It's tuition, room and board, books and supplies, transportation, and so forth.

00:15:20.940 | And then the bottom is your nonprofit.

00:15:22.740 | It's going to be private, nonprofit, four-year college.

00:15:26.940 | Now, a couple of things that strike me is, number one, why does it cost more money to

00:15:31.100 | live in a dorm in a private college than a public college?

00:15:36.420 | I don't know.

00:15:37.420 | The second thing is, you know, the books, I noticed the books have increased with the

00:15:43.820 | rate of that original inflation, the cost.

00:15:47.540 | Books have gone up about 1,200% over the last 40 years, too.

00:15:50.860 | So they have far outpaced the cost of just buying a regular book.

00:15:55.180 | In fact, if you bought a regular book, the cost has actually come down.

00:15:57.980 | It's basically been lower than the inflation rate.

00:16:00.420 | So tell me, if you will, if you know this, what's going on with textbooks, college textbooks?

00:16:06.140 | Why are they so expensive?

00:16:09.420 | Yeah.

00:16:10.420 | So I know a little bit about this only because I helped some friends of mine run a campus-based

00:16:17.740 | used bookstore back in the late '80s and early '90s.

00:16:21.580 | And look, you know, some industries have higher profit margins than others.

00:16:28.780 | And textbook publishers really rake it in.

00:16:32.660 | Why do they do that?

00:16:34.020 | Well, first of all, I can tell you the how, right?

00:16:37.620 | If you put out a slightly changed, really just like repaginated, where you change the

00:16:45.460 | font size of the edition of your textbook every 18 months, then you can just sink the

00:16:50.860 | used textbook market altogether.

00:16:53.580 | And if you want to do well in the class and don't want to be checking the book out from

00:16:56.900 | the library, you've got no choice but to buy this thing.

00:17:00.500 | And the books back in the day would only be available at the campus bookstore.

00:17:04.660 | And you paid the list price, and that was that.

00:17:08.140 | And there's a reasonably high barrier to entry for these things because the professors themselves

00:17:13.580 | have high standards.

00:17:15.220 | They want the textbook to be excellent.

00:17:17.380 | And it turns out it takes a couple of years to write a really great, thoughtful textbook

00:17:24.980 | for organic chemistry or for psych 101 or for econ.

00:17:30.060 | And so they do this because they can.

00:17:32.500 | I mean, it's not an incredibly large piece of the budgetary pie, but it's just high enough

00:17:39.860 | that it really bugs people.

00:17:43.140 | And there have been various attempts at innovation, most recently with the electronic textbook

00:17:49.260 | publishing.

00:17:50.500 | And that's helped some, but this is just a slow industry to change.

00:17:55.740 | And people, the professors in particular, have sort of ingrained habits, and it's a

00:18:04.260 | tough one to crack.

00:18:07.580 | So let me ask a question since college is getting to be so expensive, as we've seen.

00:18:12.180 | And we'll get into what people actually pay as opposed to what the advertised cost is

00:18:16.460 | here in a little bit.

00:18:17.700 | But tell me whether it's still worth it to pay all of this money to go to a four-year

00:18:24.540 | college.

00:18:25.540 | Are you going to get a better job?

00:18:27.580 | And what's the data show?

00:18:28.700 | Should you go to college anymore or a four-year college?

00:18:34.020 | Well, so let's start with the baseline economic data.

00:18:38.740 | The baseline economic data tells us that there's roughly a million-dollar lifetime gap in earnings

00:18:47.880 | between people who go to college and finish, which is important because roughly there's

00:18:55.100 | a very high percentage of people who go to college or start college and never actually

00:18:59.540 | finish.

00:19:00.540 | So that million-dollar difference is between people who finish and people who don't or

00:19:04.700 | who never go in the first place.

00:19:06.740 | So that's a lot of money over time, but that's just an average.

00:19:10.060 | So of course, all of our kids are above average.

00:19:13.220 | And the ones who are above average, who don't go to college, are ones who enter highly paid

00:19:20.140 | trades for which there is a relatively consistent demand, often in a situation where they're

00:19:26.780 | self-employed and not at the whim of whether the local manufacturer moves out of town or

00:19:32.000 | whether the Chrysler plant closes and moves to Mexico.

00:19:36.740 | And so much is going to depend on the choices you make.

00:19:41.780 | I ask people to consider a different question because not everybody goes to college for

00:19:49.340 | the same reason in the first place.

00:19:50.900 | So trying to figure out what's worth it and how much it's worth gets to the very definition

00:19:57.340 | of what college is in the first place.

00:20:01.420 | And when I started doing the reporting for the price you pay for college, people sort

00:20:05.920 | of looked at me funny when I asked them, "Well, what is college?"

00:20:09.300 | They would just sort of look back at me blankly, and I'm like, "Surely you've thought about

00:20:14.060 | the point of the exercise if you're about to maybe spend $300,000 on this thing, right?"

00:20:18.940 | And then their faces scrunch up and they're like, "Yeah, I guess we should do that," right?

00:20:23.460 | And so I get them talking, right?

00:20:25.620 | And it really just comes down to three things.

00:20:28.760 | College first and foremost, not foremost, foremost for some people, first, college first

00:20:33.900 | is about the education, right?

00:20:36.460 | It's about the learning.

00:20:37.620 | It's about having your mind grown and your mind blown, right?

00:20:43.800 | Essentially having your brain taken apart and put back together again by an expert practitioner.

00:20:48.700 | So that's the first part.

00:20:51.380 | The second part of college for many people is the kinship, right?

00:20:55.940 | You go to college to find the people that you never could have imagined existing in

00:21:01.300 | the world, right?

00:21:02.660 | The people who will be by your side for the rest of your life and who will mold and shape

00:21:10.960 | you themselves through four years of banter and decades afterwards of friendship.

00:21:17.200 | These are also the people who will form the beginnings of your career network.

00:21:21.580 | And it's not just peers, by the way, it's also grownups, right?

00:21:24.820 | It is the professors, it is the deans or other people you encounter along the way who will

00:21:32.260 | become your mentor and who will sort of drag you into a bigger and better version of yourself.

00:21:38.100 | So that's number two, college is about the people.

00:21:40.660 | And then number three, college is also, of course, at least for most people, about the

00:21:44.060 | credential, right?

00:21:45.940 | And maybe that's a credential that allows you to take a kind of quantum leap up the

00:21:52.840 | social class ladder and into a middle-class career where there is a reasonable amount

00:21:59.780 | of job security because you've gotten a bachelor's in nursing or a bachelor's in accounting or

00:22:05.860 | something like that, or you're going to go to med school.

00:22:09.460 | Or perhaps you're getting that credential because you know that the degree from Princeton

00:22:17.300 | when you're coming from rural Wisconsin will open doors for you into industries and companies

00:22:24.300 | that never would have been open to you otherwise, with the sort of social capital and the snobbery

00:22:31.580 | and elitism and all of it that comes with a fancy name-plated degree.

00:22:37.700 | So those are the three things that college are about.

00:22:40.300 | And there's no right answer to the question.

00:22:43.900 | Some people think all three are of equal importance.

00:22:46.600 | Then there's some people who are only going for the kinship.

00:22:49.660 | And I make no judgments about that.

00:22:52.020 | I only make judgments about the people who never stop to ask themselves the question

00:22:56.860 | in the first place, because if you don't do that, how do you know what you're shopping

00:23:00.940 | for?

00:23:02.660 | So we're going to go to college.

00:23:06.940 | The children or the grandchildren are going to go to college.

00:23:09.060 | Now we have to figure out, well, which college, and then how to get into that college, and

00:23:16.100 | then how to pay for that college.

00:23:18.580 | So let's start out with selecting the right school.

00:23:22.620 | You list three unhelpful feelings.

00:23:25.740 | You call them the three unhelpful feelings of fear, guilt, and snobbery and elitism.

00:23:31.980 | Can you explain why these are unhealthy?

00:23:35.300 | Sure.

00:23:36.540 | Well, I guess where you start is you always want to be checking yourself.

00:23:44.980 | And this is not going to be any news to Bogleheads.

00:23:51.780 | The Boglehead community has become used to, over decades, resisting flashiness, resisting

00:24:01.540 | so-called expertise, resisting the smart man and the smart woman who are supposedly the

00:24:09.300 | end-all, be-all of investing prowess.

00:24:15.520 | And so what are the things that can cause you to spend more than you need to?

00:24:23.740 | And I think those emotions and those answers apply equally well to colleges as they do

00:24:29.740 | to mutual funds or ETFs, right?

00:24:31.620 | First of all is fear, right?

00:24:33.940 | Fear that if you don't spend money, fear that if you don't believe that you'll get what

00:24:42.020 | you pay for and the more you pay, the more you'll get, the fear that if you do it wrong,

00:24:47.540 | if you cheap out, right, that in this instance, your kids will go tumbling down the social

00:24:54.060 | class ladder from wherever it is that you've managed to clamber up to because you were

00:25:02.420 | too cheap, essentially, right?

00:25:05.500 | And that there's something wrong with you as a parent or as a grandparent if you're

00:25:09.260 | not ponying up for the most expensive version of whatever it is that you know that your

00:25:15.340 | kid actually needs, right?

00:25:18.000 | College is not a want for many families, it's a given, right?

00:25:22.180 | So this is actually a need, it's just a question of how much you're going to pay for it.

00:25:27.340 | So there's that fear, right?

00:25:29.380 | Then there's guilt.

00:25:32.380 | Guilt that we have not saved enough to provide whatever it is our kid wants in this category

00:25:39.740 | of need.

00:25:41.700 | Guilt that we do not earn enough.

00:25:43.180 | Guilt that we chose the wrong profession that does not allow us to write a $300,000 check

00:25:48.180 | after taxes out of current income.

00:25:50.980 | Guilt that we cannot do what our parents did for us even though Rick's parents in 1980,

00:25:56.940 | if they did pay for any of it, and it looks like they didn't, but had they wanted to or

00:26:04.140 | been able to, the final price tag for you, as you just explained at the top of the hour,

00:26:12.460 | doesn't look anything like the $128,000 price tag, you know, the 17 Kingston or Cranston

00:26:20.420 | or Providence would be looking at right now, right?

00:26:24.220 | And so, you know, we get ourselves all hung up on what our parents did for us without

00:26:28.060 | really understanding that the world has changed entirely.

00:26:31.500 | Or maybe we get all hung up on what our parents did not do for us, right?

00:26:37.180 | And we either deeply resent that they had the ability but not the willingness to pay

00:26:40.940 | for us, or we know how much we struggled because they did not have enough money through no

00:26:48.700 | faults of their own, and we want it to be exactly the opposite for our kids.

00:26:52.700 | We want them never to have to worry about money during college for a second, no matter

00:26:55.900 | how much it costs, right?

00:26:57.700 | And if we haven't accomplished that, if we haven't satisfied that goal, then we're doing

00:27:01.220 | it wrong, right?

00:27:02.220 | So it's just like guilt, guilt, guilt.

00:27:04.660 | We can send ourselves on so many guilt trips about this stuff, and I'm trying to get people

00:27:09.860 | off those guilt trips.

00:27:11.420 | And then the fear and the snobbery is, you know, about the subconscious or maybe the

00:27:17.540 | conscious sense that where our kid goes to school, where we can afford to send our kid,

00:27:24.060 | where they are able to get in, is all some kind of, you know, final exam on parenting.

00:27:33.380 | That the results of which is displayed in public, to the public, through like, you know,

00:27:40.260 | the Facebook and Instagram sweatshirt reveals and the bumper sticker in the window, right?

00:27:45.580 | And you want that college to be as prestigious or fancy as possible, otherwise you did it

00:27:49.980 | wrong.

00:27:50.980 | Otherwise, you know, you've gotten a C- as a parent, right?

00:27:55.300 | Or even if we manage to kind of get over that and step outside of ourselves, we're worried

00:28:00.340 | about other people's snobbery, right?

00:28:04.420 | Because if we got a 16-year-old budding investment banker on our hands, and that kid has already

00:28:11.660 | figured out that like, oh, okay, if I'm going to do this, I want to be an investment banking

00:28:16.300 | analyst, you know, Goldman Sachs or Morgan Stanley, or, you know, a couple of other Wall

00:28:22.100 | Street firms.

00:28:24.000 | Those places are just chock full of snobs and elitists, and they are not going to hire

00:28:29.060 | you out of Wisconsin Whitewater, right?

00:28:32.780 | But they are going to hire you out of Princeton, they are going to take a close look there.

00:28:37.900 | And so, you know, if you've got a, if you've got 10,000 acres, and, you know, 5,000 head

00:28:45.420 | of dairy cattle, you know, up in northern Wisconsin, and you're tempted to, you know,

00:28:50.940 | just send your kid to Wisconsin Whitewater, that's great, but if that kid really wants

00:28:54.460 | to be a banker, and you want that kid to have a shot at their dream, and you're not going

00:28:58.980 | to earn any need-based financial aid, because you're making all that money, you know, selling

00:29:02.540 | the milk to Ben and Jerry's, you're going to think really hard about spending that $300,000

00:29:07.660 | for Princeton if your kid manages to get it.

00:29:10.580 | Not because you think it's worth it, but because somebody else on Wall Street is a big freaking

00:29:15.620 | snob, right?

00:29:17.360 | And so, you know, these are relatively limited circumstances, but, you know, as a parent,

00:29:23.180 | right, I can see how if you have the means or the ability to borrow, right, you want

00:29:30.180 | to do everything you possibly can, or you're tempted to, not to close off any avenues to

00:29:37.140 | your kid whatsoever.

00:29:39.020 | And that is how people end up spending $300,000 or borrowing to do so.

00:29:43.860 | And sometimes it's for, you know, a reasonably good reason, and sometimes it's because people

00:29:48.180 | are confused.

00:29:50.660 | So you talk a lot in the book about value, you know, are you getting the value out of

00:29:57.660 | your education, or so forth.

00:30:00.700 | So how do you separate, for each individual, of course, it's different.

00:30:04.620 | So how do you separate value, and how do you find value in the college system?

00:30:10.580 | Sure.

00:30:11.580 | So, I mean, it begins with trying to figure out what it is that you're going to school

00:30:16.140 | for, right?

00:30:17.620 | So let's forget about the 16-year-old investment banker for a minute.

00:30:22.620 | Let's think about the 16-year-old who wants nothing more than to be a marine biologist,

00:30:29.340 | right?

00:30:30.340 | And this isn't, you know, the eight-year-old who, like, loves the dolphins.

00:30:33.420 | This is the 16-year-old who's, like, shooting the lights out in AP Bio, and has done an

00:30:37.740 | internship and, like, you know, is reasonably sure that they want to go not just to college,

00:30:43.500 | but to graduate school, right?

00:30:45.780 | So you're thinking about a lot of things there, right?

00:30:48.740 | But probably the first thing you're thinking about, hopefully, is, you know, you're thinking

00:30:55.540 | about the quality of the education, but what you're also thinking about is the quality

00:30:59.980 | of the mentorship, right?

00:31:01.740 | Because you know that you can't get into one of these, you know, teeny-tiny, very competitive

00:31:10.380 | marine biology PhD programs, or you figure this out with a little bit of research.

00:31:14.140 | You can't do that without just a glowing, lights-out recommendation from your undergraduate,

00:31:20.940 | you know, faculty advisor, right?

00:31:23.040 | So how are you going to find somebody in an institution who's going to actually get to

00:31:28.780 | know your kid well enough to be able to write that kind of recommendation?

00:31:33.080 | And what sort of environment or circumstances are going to need to exist?

00:31:36.580 | Is there a better chance of that happening if they're in, you know, Biology 101 with

00:31:42.300 | 800 other people, including 300 people who want to go to medical school?

00:31:46.700 | Was there a better chance of that happening if they go to a small liberal arts college

00:31:50.540 | that happens to have a really great biology program, right?

00:31:54.780 | So you know, you start thinking about size.

00:31:56.820 | You start thinking about faculty content, right?

00:32:00.340 | Again, right, if you're, you know, up there in northern Wisconsin and you've got that

00:32:06.380 | studying marine biologist on your hands who wants to do it someplace other than, you know,

00:32:11.740 | Lake Superior, you know, maybe you're going to send them to, you know, to Madison or to

00:32:16.860 | Wisconsin Whitewater.

00:32:18.380 | But there may be a lot of adjunct professors there or part-timers who aren't even going

00:32:21.980 | to be around two or three years later.

00:32:24.260 | Whereas if they go to Lawrence University, you know, small, small, smaller school, you

00:32:28.940 | know, if they go to Knox College, if they go to one of the, you know, smaller colleges

00:32:33.740 | in Minnesota, they're going to have a better shot at making that kind of contact, right?

00:32:38.620 | And then you can go looking for data, which actually does exist, that will tell you, you

00:32:44.620 | know, where, which undergraduate institutions, the PhD students, you know, at the, at the

00:32:52.460 | biggest biology programs for PhD students, you know, where, where the undergraduates

00:32:56.940 | actually come from, right?

00:32:58.660 | This data is out there.

00:32:59.660 | So, you know, you start looking for whatever data or evidence you can exist, you can, that

00:33:04.220 | exists that might give you some sense of whether an institution that costs more than your state

00:33:11.700 | university might actually be worth it if it stands the chance of raising the odds of helping

00:33:18.420 | your kid do whatever it is that they want to do.

00:33:21.060 | So there are a number of problems with this, right?

00:33:23.920 | First of all, to the extent that the colleges have good data on outcomes, they're not

00:33:29.580 | always so great about sharing, right?

00:33:32.620 | Because if everybody shared standardized data, then there would be even more ways to compare

00:33:36.740 | and rank the schools.

00:33:38.300 | And this is not in their interest.

00:33:40.880 | And so, you know, there's not always great data.

00:33:43.820 | It isn't easy to find, I spent years, you know, sort of hoovering up resources and trying

00:33:48.140 | to spit them out in the book, but I was not ultimately satisfied with what I was able

00:33:51.540 | to put together and, and it's the school's fault, right?

00:33:55.820 | And then there's the not so small matter of the fact that we are dealing with children,

00:34:00.820 | right?

00:34:02.100 | For reasons lost to history, but that make absolutely no sense whatsoever.

00:34:06.660 | We spend all this money on teenagers, right?

00:34:09.400 | We don't send them off to serve in the U.S. armed forces on a mandatory basis.

00:34:14.100 | We don't send them off to do non-military national service.

00:34:17.860 | We don't encourage them for the most part to take a year or two off before going to

00:34:22.300 | college.

00:34:23.300 | And these 18 year olds who've never done a darn thing in the world, except, you know,

00:34:26.340 | scoop ice cream and work at a day camp and, and, you know, sit in, sit in high school,

00:34:31.580 | going to college and we're making these six figure decisions, investments based on what

00:34:35.580 | we think their interests are.

00:34:37.780 | But some of them have no earthy idea what they want to do.

00:34:40.380 | And then many of the rest who are absolutely certain about Wall Street or marine biology

00:34:45.620 | change their minds once they get into a really good college classroom and get exposed to,

00:34:50.900 | you know, bigger and better ideas.

00:34:53.200 | So the whole thing is fundamentally flawed and deeply dissatisfied.

00:34:57.400 | And and I'm just trying to help people, you know, walk through a reasonably dysfunctional

00:35:06.180 | system with their heads screwed on reasonably straight.

00:35:11.380 | That's great.

00:35:13.580 | Okay.

00:35:14.580 | So at the end of this journey, you're going to pick out a few schools and you're going

00:35:21.300 | to have to apply to get into those schools.

00:35:26.500 | So I have a slide on that.

00:35:29.420 | And here's my slide for that.

00:35:33.300 | Is it flickering or is it okay?

00:35:36.140 | Can you see that?

00:35:37.620 | Well, I learned this by watching television.

00:35:44.300 | But anyway, so now we need to get it.

00:35:49.180 | We need to get it.

00:35:50.180 | And with that in mind, the big thing these days seems to be diversity.

00:35:55.880 | I was listening to some entrance experts, if you will, former admissions experts, and

00:36:03.260 | they were talking about diversity, diversity, diversity, not just race and religion, but

00:36:08.700 | athletics, anything that sets you apart from others.

00:36:11.820 | So how do you use diversity to get into the school you want to get into?

00:36:16.900 | Sure.

00:36:17.900 | So, I mean, let's just talk briefly and bluntly about how this works at the 20 most rejected

00:36:27.780 | schools in the country, the schools that reject the highest percentage of applicants.

00:36:33.420 | And there you are at the biggest advantage if you are rich and if you are white.

00:36:41.020 | You're at an advantage if you're rich, because you can donate a building, right?

00:36:48.900 | And it tends to be way more affluent and way whiter people who benefit from what's known

00:36:55.140 | as what's known as a legacy preference, right?

00:36:59.580 | Where your grades can be lower and your scores can be lower as long as your mom or your dad

00:37:03.740 | or both or like four generations of Cabot's, you know, or eight generations, you know,

00:37:08.660 | went to Harvard or Amherst or Stanford.

00:37:11.720 | Those people tend to be disproportionately affluent and white.

00:37:15.860 | When it comes to athletic preference, which gives you even a bigger edge than the legacy

00:37:20.980 | preference does, you know, many of those sports, although not all, but, you know, the majority

00:37:26.220 | of them are sports that require a great deal of investment and nurturing to, you know,

00:37:31.740 | get you to a place through the private tutoring, through the, you know, through the, you know,

00:37:40.560 | the, you know, kind of elite level club sports, right, that will get you ready to swim or

00:37:45.740 | play golf or play tennis or play lacrosse or play hockey at an institution that will

00:37:50.800 | give you a preference, right?

00:37:52.340 | So there, too, being wealthy gives you the bigger advantage and more often than not,

00:37:58.940 | the people who are wealthy are white.

00:38:00.820 | Same thing through with, you know, testing and tutoring on academics.

00:38:06.560 | And then there are preferences based on race, which are the ones that get the most attention,

00:38:12.500 | but may have a little bit less to do with who gets in than, you know, the total number

00:38:20.500 | of people who get in via legacy preference or via athletic preference, particularly in

00:38:25.620 | the rich white sports.

00:38:27.540 | So all of that is like a, you know, big kind of toxic stew that generates a lot of attention.

00:38:34.580 | But what I think people miss a lot of the time is that like a step below there at some

00:38:40.740 | still like really excellent high quality schools that, you know, reject way more applicants

00:38:45.940 | than they can take, there is actually, you know, a huge advantage to being able to pay

00:38:51.880 | full price because they get 50 or 75 percent of the way through the number of admissions

00:38:57.940 | they have to hand out, and then they start running out of financial aid money, right?

00:39:02.080 | And then the packages get weaker or they just start rejecting people who need aid, right?

00:39:07.300 | So if you are a Bogle head and you, you know, have those compound interest charts imprinted

00:39:14.100 | in your brain, which I do thanks to my dad and the USA Magazine, you know, sending me

00:39:20.080 | one when I was 23 years old, I knew good and well, right, that I, you know, I didn't want

00:39:26.240 | money to be a factor, and so I just started saving for college for my kids, like, well,

00:39:32.160 | they were still in utero, right?

00:39:34.560 | So money does provide a really sizable and sometimes measurable admissions advantage

00:39:42.020 | there too.

00:39:43.020 | So, you know, in many of these institutions that parents would be proud to send their

00:39:47.520 | kids to, it's good to be rich.

00:39:51.920 | So you know, it's complicated and it becomes politicized, but the fact of the matter is

00:39:56.680 | that there are all sorts of people of all sorts of skin tones and backgrounds benefiting

00:40:04.380 | from a certain amount of admissions preference.

00:40:10.600 | And that makes it harder, you know, in many instances, in most instances, for people who

00:40:14.480 | do not have any sort of a hook.

00:40:18.640 | But we shouldn't forget that there are hundreds and hundreds of, you know, essentially open

00:40:29.200 | access undergraduate institutions out there, where more or less anybody can go, you know,

00:40:34.640 | if you can fog a mirror, and you know, there's a lot of dedicated instructors at those places

00:40:40.920 | too, and you know, I don't want to discount the worth of those institutions.

00:40:46.400 | So I was reading in the book that we were talking about the advertised price of college

00:40:53.560 | and the two reasons why colleges put these very high prices on their website.

00:41:01.920 | Number one, because some people will pay it, they'll pay it.

00:41:06.460 | And number two is because if they don't put the high price on there, people don't think

00:41:10.280 | they're getting good value for their money.

00:41:13.840 | So with that in mind, let's getting into how do we pay for college?

00:41:20.640 | First of all, let's talk about discounting.

00:41:23.240 | And I really, it was enlightening to me and reading your book that internally, admissions

00:41:29.080 | people call it discounting, but externally, they call it scholarships.

00:41:34.960 | Anyway, could you go into discounting?

00:41:39.200 | What should you pay?

00:41:40.880 | Not what the price is, but what should you pay?

00:41:43.880 | Right.

00:41:44.880 | Well, gosh, where do we start here?

00:41:47.200 | I mean, there's a couple of different ways that these discounts happen, and you know,

00:41:52.360 | we'll use the terms interchangeably, but what you want to be thinking about as a parent,

00:41:56.400 | as a shopper, right?

00:41:58.000 | Like what is the, you know, what is my actual cost of attendance going to be?

00:42:03.500 | And if I get, you know, an offer of, you know, financial aid, am I a hundred percent sure

00:42:08.680 | I understand which of these discounts or scholarships, you know, that we're not going to have to

00:42:15.280 | pay back and that, you know, we understand how much the school is asking us to actually

00:42:19.360 | pay out of pocket and, or what it's telling us to borrow, right?

00:42:23.240 | So there's two basic kinds of financial aid, you know, back in our day, even back in my

00:42:28.320 | day, I'm a couple of years younger than you, Rick.

00:42:32.200 | Most of the financial aid that was offered was offered based on need, right?

00:42:36.400 | So my family had to kind of lay ourselves bare in terms of our income and our assets.

00:42:40.760 | And then Amherst College decided what they thought we could afford to pay.

00:42:45.320 | And they basically were good for the rest of it with, you know, with a couple of, you

00:42:50.440 | know, campus jobs and undergraduate loans thrown in.

00:42:55.240 | What's changed now is that that need-based aid system still exists and, you know, at

00:43:01.800 | the hundred or so, you know, most well-resourced private institutions in America, state systems

00:43:09.660 | are a little different, but, you know, at the private ones, it still kind of looks like

00:43:12.520 | that.

00:43:13.520 | But, you know, starting around in the nineties, this like whole separate system hived off

00:43:18.280 | that's become known as merit aid.

00:43:21.460 | And merit aid was originally designed to help, like, you know, fourth tier institutions improve

00:43:31.080 | to the third or second tier by swiping kids who were qualified for second or even first

00:43:36.920 | tier institutions by throwing money at them and making them feel good, right?

00:43:41.280 | So if you got this unsolicited offer in the mail after you took your PSAT test and you'd

00:43:46.280 | done well, from a school that you've never heard of, you know, the letter would say,

00:43:51.280 | "Hey, we have our eye on you and we're not going to charge you any application fee.

00:43:56.500 | If you come here and you get in, you know, we'll give you $5,000 off the list price."

00:44:01.640 | And that worked so well, so many of the, you know, of the good smart kids, like were getting

00:44:06.840 | bought off, you know, from higher tier institutions that market forces intervened, you know, competition

00:44:13.760 | took hold and over the course of 10 or 15 or 20 years, it just kind of moved, you know,

00:44:18.760 | farther and farther up the food chain where now, you know, it's really only 30 or 40 schools

00:44:25.920 | that aren't forced to offer some kind of discount.

00:44:29.640 | And let's be clear too, this merit aid discounting, it has nothing to do with your ability to

00:44:35.480 | pay and kind of everything to do with your willingness, right?

00:44:39.180 | So there are all sorts of super rich families who are being offered 10, 20, $30,000 off

00:44:44.120 | a year or even a full ride if the school has decided that their kids are attractive, whether

00:44:50.720 | because of their actual academic or extracurricular merit, or just because they're throwing money

00:44:56.000 | around to, you know, try and get people to come.

00:44:58.640 | So, you know, think about it this way, right?

00:45:00.280 | If you're Kenyon College, right, in Ohio or Connecticut College in New London, Connecticut,

00:45:10.260 | if you are Macalester College in St. Paul, Minnesota, you know, excellent schools, but

00:45:17.500 | they have slipped enough in terms of marketplace perception that even a certain number of people

00:45:23.660 | with the ability to pay $75,000 a year are lacking the willingness to do so, right?

00:45:30.260 | But if you are Macalester and your cost to educate a student is $42,000 a year, right?

00:45:35.840 | You're charging a list price of 70, right?

00:45:38.480 | If you throw an $18,000 merit aid package at an affluent family, that family's going

00:45:44.320 | to feel really good about what it has accomplished, right?

00:45:48.640 | Because they're going to get 18, 36, 54, $72,000 off over the course of four years.

00:45:54.980 | Their cost of attendance in any given year is $52,000, right?

00:45:59.320 | But if Macalester only needs $40,000 to educate that kid, that's still a $12,000 profit, right?

00:46:05.920 | And they can take that profit and they can toss it at a lower income family and help

00:46:10.440 | them too, right?

00:46:12.120 | So in theory, everybody wins, but it's a real weird look to be throwing scholarships at

00:46:18.520 | millionaires, which is essentially what's going on.

00:46:23.760 | And so as a parent, as a shopper, it is not at all clear that this is going on, the extent

00:46:31.600 | to which it's going on, nor is it predictable in many instances how much you will get, right?

00:46:40.360 | And so for somebody with like a bogal head mindset, the temptation and the desire, once

00:46:48.120 | you understand what's going on behind the curtain, is to crack the code, right?

00:46:52.240 | To try and beat the system.

00:46:54.800 | And so I did my level best in the book to show people exactly where the data is that

00:47:01.200 | can give them some level of predictability about what kind of merit it might be offered.

00:47:06.600 | But the fact of the matter is, is that the schools kind of change their goals each year,

00:47:10.840 | in part depending on their own institutional priorities, and also based on what's going

00:47:17.240 | on in the market around them.

00:47:19.280 | And especially in the last couple of years with the pandemic, whatever algorithms they're

00:47:24.160 | using to try and decide what prices to offer which students, which is another revelation

00:47:30.280 | for people.

00:47:31.280 | A lot of these merit aid offers are delivered by robots, by software, not by humans, right?

00:47:38.000 | These algorithms can't predict how people are going to behave during a pandemic.

00:47:41.420 | And so you're getting all sorts of wacky results where people are getting no discounts or they're

00:47:47.600 | deciding to apply to 22 schools just because it's all so unpredictable, and they're only

00:47:52.760 | getting into four, and it's all a real hash.

00:47:57.120 | I do hope that things will have kind of leveled out and they'll be making more sense by next

00:48:02.480 | year.

00:48:04.240 | But it's not always predictable.

00:48:08.040 | So the best we can do sometimes is just attempt to explain how the system works, even if we

00:48:15.200 | can't predict precisely what kind of offer it's going to make in any given year.

00:48:23.240 | Let's get on to a couple of other ways of saving.

00:48:25.960 | And that is the most popular one is a 529 plan.

00:48:29.620 | And a lot of people use 529 plans, parents use them, grandparents use them.

00:48:33.580 | Some states give tax breaks, some don't.

00:48:36.560 | A lot of people ask, the most common question I get about 529s is how much is enough?

00:48:41.240 | How much should I put in?

00:48:43.520 | Or should I put in every year and what do I need to get to by age 18 when my son or

00:48:49.560 | daughter goes to college?

00:48:51.720 | So could you talk about 529?

00:48:54.960 | And then the next question I'm going to ask would be the final question, because we don't

00:48:59.360 | have any more time, will be student loans.

00:49:02.040 | So 529s first, and then student loans second.

00:49:05.360 | Sure.

00:49:06.360 | So let's start with 529s.

00:49:08.320 | As I think most of the people in this crowd probably know, the nice thing about 529s is

00:49:13.160 | that they come with some sizable tax benefits, right?

00:49:17.680 | In 30-some states, you get some kind of a tax break for putting money in in the first

00:49:22.840 | place.

00:49:23.840 | And then for everybody, you get a huge tax break on the way out.

00:49:26.760 | As long as you take the money and you use it for some higher educational purpose, or

00:49:33.360 | for private K-12 schools in many states, you don't pay any capital gains taxes on the earnings.

00:49:40.720 | And so if you start at age zero and you get the kind of market that we've had the last

00:49:45.360 | 15 or 20 years, you're going to have a lot of capital gains that you're not paying taxes

00:49:49.320 | on.

00:49:50.320 | So yay for beating the system, right?

00:49:52.700 | So the downside is there's a bit of complexity.

00:49:57.240 | Every state has their own plan.

00:49:59.320 | The rules tend to be different.

00:50:01.840 | Different investment lineups, sometimes, although with increasingly less frequency, your plan

00:50:08.760 | may not have an index fund for every asset class that you want to be in, although that's

00:50:14.840 | mostly gone now.

00:50:16.120 | It was definitely the case 10 or 15 years ago.

00:50:19.400 | Thankfully, Vanguard and others who index are running or providing investments for most

00:50:26.480 | of these plans.

00:50:27.480 | So how much should you save?

00:50:29.720 | Well, save as much as you reasonably can, right?

00:50:34.080 | Everybody's different.

00:50:35.080 | Here's something to anchor to that might make you not freak out, because I talk to a lot

00:50:39.640 | of parents of young kids and if they can do any kind of inflation math in their head,

00:50:46.080 | they're thinking, wow, if I want my kid to go to the institutions that we went to, it's

00:50:51.880 | going to be $500,000 by the time they're 18.

00:50:56.920 | And that's insane, right?

00:50:58.640 | I'm still paying off my student loan debt.

00:51:00.580 | We haven't bought our forever home yet.

00:51:02.240 | We want to have seven figures in retirement savings.

00:51:04.640 | How am I going to do this, right?

00:51:07.920 | So many years ago, I had a conversation with a financial planner in Wisconsin named Kevin

00:51:13.840 | McKinley, who came up with what I now refer to as the McKinley rule, which is just to

00:51:19.200 | think about it in fractions.

00:51:22.400 | You could think about it this way, right?

00:51:23.880 | You want to save a third of the money that they'll need for college.

00:51:27.560 | And maybe your goal is public, or maybe your goal is private, or maybe it's somewhere in

00:51:31.880 | between those two list prices as we've discussed, right?

00:51:34.720 | So you want to save a third, you want to pay for a third out of current income, right?

00:51:39.640 | So while they're in college, you stop taking vacations, you eat rice and beans, you do

00:51:48.280 | whatever you can, and you pay for a third of that while they're there, and then you

00:51:52.480 | borrow a third.

00:51:53.760 | Maybe the parents borrow half of that third and the kid borrows the other half, right?

00:51:58.640 | Although if your kid goes to a state university, the federal loan borrowing limit of $31,000

00:52:04.960 | or so will almost cover that third all alone, right?

00:52:08.280 | So then this starts to feel reasonable, right?

00:52:10.920 | If your goal is to end up with $50,000 of savings in today's dollars, you can do that

00:52:16.640 | with 250 bucks a month or whatever it is, depending on your return assumptions.

00:52:21.400 | And that starts to feel a little more doable for families, right?

00:52:25.560 | Then you're not driving yourself crazy.

00:52:27.080 | Now that number is going to need to be higher if you want to have a third of a private college

00:52:32.880 | available to you 18 years from now.

00:52:34.800 | And if you have more than one kid, well, right, there you go, right?

00:52:38.040 | So what can you do?

00:52:39.040 | Well, you can talk to grandparents about this, right?

00:52:42.640 | Even $50 a month of a contribution from a relative can make an appreciable difference

00:52:47.400 | going forward.

00:52:48.400 | Okay to ask, right?

00:52:51.200 | Much better than all the plastic trinkets that they tend to show up with that end up

00:52:55.320 | underfoot and then in the garbage.

00:52:58.160 | And so those are the basics, right?

00:53:01.760 | There's an hour-long debate we could have about whether you might be better off just

00:53:05.800 | saving in a standard brokerage account for a whole variety of reasons.

00:53:08.920 | And that's fine if that's the way you want to go.

00:53:11.720 | I just urge, beg people to start early, save as much as you reasonably can.

00:53:17.880 | It is so rare that anybody regrets saving too much for college.

00:53:21.740 | That would be a high-class problem.

00:53:23.940 | So let's talk about student loans for a couple of minutes.

00:53:26.240 | I mean, there are three types, the direct loans from the government, as you mentioned,

00:53:30.400 | then there's private loans, and then there's parent loans called direct PLU loans.

00:53:35.080 | Could you just briefly describe the three different types?

00:53:38.960 | Sure.

00:53:40.680 | So it has worked different ways over the years, but the way it works today is that if you

00:53:45.600 | are borrowing from the federal government, there is no bank involved, right?

00:53:51.840 | And in most instances, if your kid is a dependent, they can borrow roughly $31,000 and change

00:53:57.900 | over the course of four years.

00:54:01.620 | And then what's known as a servicer will step in to start sort of collecting those payments.

00:54:06.960 | So those are how the undergraduate loans work.

00:54:09.680 | Then there are private loans from institutions like Sallie Mae, Discover, maybe your credit

00:54:14.720 | union does some of this, a few other companies you may have heard of.

00:54:20.280 | And again, back in the day, undergraduates used to be able to get private loans on top

00:54:24.460 | of the federal loans or in lieu of the federal loans without any kind of parental grown-up

00:54:29.920 | cosigner, and that is not the case anymore.

00:54:33.720 | So if your kid has maxed out their federal loans and you want to borrow even more, which

00:54:38.120 | I would encourage you to think hard about whether that's smart or not, you will need

00:54:42.360 | to be a cosigner.

00:54:43.680 | And then there's going to be a sort of complex dance afterwards where all of you will have

00:54:49.000 | to decide like who's making the payments and whose credit rating is getting messed up if

00:54:53.560 | the 22-year-old is making the payments and forgets, right, and how much debt is too much

00:54:59.240 | and for what sort of degree.

00:55:02.520 | Then there are those parent loans that you mentioned.

00:55:04.320 | There are what's known as the plus loans that you can get from the federal government, pretty

00:55:09.680 | high origination rate, pretty high interest rate.

00:55:15.840 | People who do feel the need to borrow sometimes will borrow against their home instead to

00:55:22.160 | avoid these federal loans.

00:55:27.640 | But parents are increasingly using them, and we actually know more about where this plus

00:55:33.360 | loan borrowing tends to be most persistent, and it is not as you would expect.

00:55:39.920 | At private institutions that are not all that well resourced in terms of their financial

00:55:44.800 | aid offerings, and also historically black schools have a fair amount of parent borrowing

00:55:50.800 | there as well.

00:55:53.300 | So those are the basic types.

00:55:55.080 | Well, last minute here, you offer a message of hope for people.

00:56:00.480 | Can you just give us your message of hope?

00:56:03.560 | Sure.

00:56:04.560 | So, I mean, let me tell you about the opposite of hope.

00:56:07.320 | I mean, the opposite of hope, all of these calls that I used to get in March and April

00:56:12.280 | from incredibly smart people who help run institutions in New York City that you have

00:56:19.920 | actually heard of, and they have gotten to the end of the process and realized that they

00:56:25.320 | had no idea that they weren't going to get any discounts, and that their kid had applied

00:56:30.280 | to all of the wrong schools.

00:56:33.560 | And they're just saying to me, "Ron, is there something you can do to help?"

00:56:39.040 | And after too many of these calls, I thought, wow, it is deeply problematic here that the

00:56:48.400 | system is so complicated.

00:56:50.280 | And while I can't solve for that, I can certainly help pull the curtain back so that people

00:56:56.080 | know, first of all, how the system works, the best ways to get discounts most effectively,

00:57:03.740 | and how to shop for the sort of institutions that will give their kid everything that the

00:57:10.080 | kid needs, and at least some of what they want, and for people to know that they don't

00:57:14.600 | have to spend $300,000 or anything close to that to accomplish those needs.

00:57:21.600 | And once you're going into the process with a head of steam, and frankly, like a bobblehead

00:57:27.340 | style system-beating, question authority, question everything mindset, it actually starts

00:57:37.540 | to be fun again, and less about dread, and more about this incredible experience that

00:57:44.920 | you are going to be able to provide for your kid one way or the other that will change

00:57:49.740 | their life.

00:57:51.940 | And as much as you may dread letting them go, you should also be excited and hopeful

00:57:57.280 | about the fact that you're able to provide it for them.

00:58:00.840 | So I don't want this to be a downer.

00:58:02.860 | I don't want people to be angry by the end of the book.

00:58:06.340 | I want them to feel ready, right?

00:58:08.380 | And I want them to feel excited and jealous, frankly, that their kid gets to do this amazing

00:58:13.280 | thing.

00:58:14.280 | Well, the name of the book is The Price You Pay for College, an entirely new roadmap for

00:58:19.160 | the biggest financial decision your family will ever make by Ron Lieber.

00:58:23.240 | Ron, thank you so much for being a guest today.

00:58:26.520 | It's been a wonderful presentation, and we've all learned a lot.

00:58:32.540 | It's a pleasure and an honor.

00:58:34.160 | And I'm easy to find at ronlieber.com, you know, if you have questions or observations

00:58:41.560 | or ideas for additional avenues of exploration, you know, those ideas are gold to me.

00:58:46.520 | So thank you.

00:58:47.520 | Thank you, Ron.

00:58:48.280 | Thank you.

00:58:48.780 | [BLANK_AUDIO]

Bogleheads® Speaker Series – Ferri with Lieber

Chapters