The Long View: What and How to Pay for College

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Our guest on the podcast today is The New York Times financial columnist and author Ron Lieber. His latest book is called The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make. He is also the author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money and coauthor of Taking Time Off: Inspiring Stories of Students Who Enjoyed Successful Breaks From College and How You Can Plan Your Own. Ron has been the "Your Money" columnist for The New York Times since 2008. Before coming to The Times, 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 attended Amherst College.

Background

College in the Pandemic

"Remote Learning Is Unequal. Coronavirus Changed That--For Now," by Jonathan Zimmerman, thephiladelphiainquirer.com, April 8, 2020.

"Spelman College Faces a Redefined Reality," by Mary Schmidt Campbell, nytimes.com, April 23, 2020.

"Colleges Won't Refund Tuition. Autumn May Force a Reckoning," by Ron Lieber, nytimes.com, May 1, 2020.

"Back to School: How the Coronavirus Could Shape the Future of Higher Education," by Karen Wallace, Morningstar.com, Nov. 9, 2020.

"Will College Tuition Go Down Because of the Pandemic?" by Norman Vanamee, townandcountrymag.com, Feb. 4, 2021.

School Choice and Cost

Where You Go Is Not Who You'll Be: An Antidote to the College Admission's Mania, by Frank Bruni, March 8, 2016.

"The Price You Pay for College, 21 Important Questions to Ask," by Ron Lieber, grownandflown.com, Jan. 23, 2021.

"College Costs Are Less Terrifying Than You Think," by Ron Lieber, nytimes.com, Jan. 28, 2021.

"How to Pay for College (and Not Lose Your Shirt)," by Ron Lieber, nytimes.com, Jan, 26, 2021.

"How Taking a Gap Year Can Shape Your Life," by Ron Lieber, nytimes.com, Oct. 19, 2016.

Financial Aid and Merit Aid

"How to Predict Merit Aid in a Strange College Application Season," by Ron Lieber, nytimes.com, Sept. 25, 2020.

"How to Ask a College for More Financial Aid," by Ron Lieber, nytimes.com, April 25, 2020.

"What a $300,000 College Might Cost a $200,000 Family," by Ron Lieber, nytimes.com, Oct. 3, 2020.

"High School Grades Could Be Worth $100,000. Time to Tell Your Child?" by Ron Lieber, nytimes.com, Jan. 23, 2021.

"FAFSA's Expected Family Contribution Is Going Away. Good Riddance," by Ron Lieber, nytimes.com, Jan. 4, 2021.

"Inside College Merit Aid—and the Manipulative, Lucrative System That Keeps it Running," by Ron Lieber, nbcnews.com, Feb. 4, 2021.

Loans

"Parent PLUS Loans: What You Need to Know," by Kimberly Rotter and Bob Musinski, usnews.com, Feb. 7, 2020.

"For Millions Deep in Student Loan Debt, Bankruptcy Is No Easy Fix," by Ron Lieber and Tara Siegel Bernard, nytimes.com, Nov. 18, 2020.

"An Invisible Cost of College: Parental Guilt," by Ron Lieber, nytimes.com, Feb. 3, 2021.

"Here's a Guide to How Grandparents Can Help Pay for College," by Ron Lieber, marketwatch.com, Feb. 2, 2021.

Transcript

Christine Benz: Hi, and welcome to The Long View. I'm Christine Benz, director of personal finance for Morningstar.

Jeff Ptak: And I'm Jeff Ptak, chief ratings officer for Morningstar Research Services.

Benz: Our guest on the podcast today is The New York Times financial columnist and author Ron Lieber. His latest book is called The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make. He is also the author of "The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money" and coauthor of "Taking Time Off: Inspiring Stories of Students Who Enjoyed Successful Breaks From College and How You Can Plan Your Own." Ron has been the "Your Money" columnist for The New York Times since 2008. Before coming to The Times, 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 attended Amherst College.

Ron, welcome to The Long View.

Ron Lieber: Thank you for having me.

Benz: Well, thank you so much for being here. I think we have so many topics that we could cover with you. But today, we're going to talk about college and paying for college, which is the subject of your new book. So, before we get into the specifics of paying for college, let's spend a bit of time on the college landscape more broadly. How has the pandemic turned colleges and the college experience upside down?

Lieber: Well, I think the way that it has focused the mind for the people who are writing the checks, is this, right? If you think about what college is, or what college is for, you go to college to get an education, you go to college seeking kinship--trying to find your people, your friends, the mentors who will help you, especially in the early part of your career--and you go to college for the credential.

If you think about all of the things that have been stripped away during this pandemic, and there have been many things for many people, in the world of higher education, the education itself is no longer what it once was. Because the teaching and the learning just isn't the same in a Zoom room. You think about the kinship, the friends that you're making--pretty hard to do that when people are scattered about. And so, the only thing we have left is the credential. People are still getting to and through college in roughly the same amount of time as they used to if they're not taking a break. And so, the credential is still meaningful. But all of the things that we thought that we were paying for, many of them are gone now. So, is it any wonder that so many people came flooding back in the fall, even though it was probably not the best public health move?

Ptak: A lot of us naturally assume that college students should be pretty adaptable to e-learning and conversely, the youngest students, less adaptable. But do college students seem to learn as well online as they would in person? Is there evidence that some things get lost?

Lieber: Well, so this is a very strange experiment that we're conducting. And we will probably learn a few things about what happened in the classroom and what didn't. But to take a step back, one of the things that was shocking for me when I went out to report the price you pay for college was that the colleges themselves for all of the academic and research prowess contained therein do not actually know a lot on a basic baseline level about whether people learn a damn thing during their four years. Now, you can measure it in science majors, or in terms of what somebody might be able to do on a medical school admissions exam, but they don't really know very much about how much people learn. And so, how much can we learn about what they did or did not learn during this pandemic, it's complicated.

Then again, when you listen to what people say in public, I think they just know intuitively that so much has been stripped away. I mean, the president of Spelman College, the women's college in Atlanta, wrote a searing essay in The New York Times about what has been lost, including the learning. Jonathan Zimmerman, a Professor at Penn, wrote a history of college teaching that's called The Amateur Hour, which gives you some sense of how well he felt like he was trained. And he said in The Philadelphia Inquirer, there's just no question that so much has been stripped away vis-à-vis the actual learning that goes on.

Benz: Does it seem like the online-learning component is here to stay even after COVID has passed or will most schools switch back to in-person, in-classroom learning?

Lieber: Well, here's the thing we sometimes forget is that college is a lot of things to a lot of people. My book is about traditional age--or what we consider to be traditional age--residential, undergraduate education. So, teenagers going and staying for four years and then coming out. But for years, or really decades, there have been all sorts of innovations now in the way in which an undergraduate education is delivered piecemeal to people attending part-time and increasingly online. So, everywhere from Southern New Hampshire to Arizona State, there are all sorts of innovations that have already stuck. But in terms of what we consider to be a rite of passage now--the residential, undergraduate education--I have real doubts about whether these professors are going to want to stay in their Zoom rooms once everybody has their jabs.

Ptak: What about the financial implications for higher-learning institutions? Some students seem to be opting for cheaper alternatives rather than paying full freight for e-learning. Do you expect that to have lasting financial implications?

Lieber: I think we might see a ticking up of the number of colleges that go out of business. But let's keep a couple of things in mind here. It is very difficult to kill off a public university or a public college. These institutions have constituencies. They have political constituencies. It's very difficult to close one down. And if you're talking about the world of private colleges, even the ones that are struggling or have struggled, have had near-death experiences, like Hampshire College, for instance, is the most recent one. Alumni tend to come out of the woodwork with checkbooks in hand, because everybody wants to be part of something, and if your alma mater is an even small part of your identity, you don't want to see it die. So, it's actually pretty difficult to kill these places off.

And the other thing I would ask people to consider is that, again, think about the way that people flocked back to school last fall if they could. People do crave this experience. And it was pretty clear, in the spring of 2020 and even in the fall of 2020, that we had not really come up with an adequate replacement for it. And so, to the folks who think that higher education is a bubble, and everything is going to go off the rails, all I can say is, I am shoveling money into a 529 plan not just for my 15-year-old, but for my 5-year-old.

Benz: College is considered a nonnegotiable for many families, in part because of the higher lifetime earnings associated with a college degree. Everyone's seen that data. Can you run us through that and quantify the value of college from a lifetime earnings perspective? And then also talk about some of the non-financial considerations that people should have in mind when they are thinking about the value of college?

Lieber: Sure. Well, I consider that last part to be in some ways more interesting and, theoretically, more valuable. The economic data is clear. There's roughly $1 million over a lifetime benefit in terms of your income if you're going to college versus not going to college. But that's an average. And none of us are exactly average. And if you come from a position of privilege and connections, not going to college may not hurt you. What we are finding generally is that the income gap, the premium that comes from attending college, it's not so much that the people who go to college are doing way better than they did 10 or 20 years ago. It's the people on the other end, the people who don't go who are losing ground, and those folks lost even more ground during the pandemic.

So that's the sort of economic side, the income side of it. But I'm interested in many of the other things that economists and others are still having trouble measuring, like, what is the return on friendship, what is the return on mentorship? And those things are harder to measure, but I think in some ways might be more important if you consider that we're not just investing in the life of a mind, but also a lifetime of happiness, hopefully.

Ptak: We're going to shift to the topic of picking a school in a minute but wanted to touch on another topic before we did that. And it's a topic that wasn't central to your book. But college isn't necessarily the right choice course for every child. Do you have any advice for parents weighing that decision: college versus some other course of study, like a trade school, after high school?

Lieber: Sure. I mean, college is a tremendous waste of money for any 18-year-old who is not sure that they want to be there and there is no shame in taking a year or two after high school and trying something else. If you've got a kid on your hands who's an absolute ace salesperson, you can have a really satisfying career in the sales field without a degree, or you can go back and get one later if somebody wants to make you get one. This happened with my brother-in-law who's a fabulously successful entrepreneur and made a whole bunch of money in the outdoor-goods sales space, and he climbed the ladder for 10 or 15 years until somebody finally said to him, you know what, you need to go do this. And he did. And at that point, he was ready and shot the lights out academically. So, you should go to school when you want to, and when you're ready, and by forcing kids who are not ready, it's a pretty good way to waste a lot of money and end up with a dropout on your hands.

Benz: Switching over to picking a school, you wrote that there are three feelings that marked the college-selection process: fear, guilt, and snobbery and elitism. So, can you talk a little bit about each of them and how they influence choices?

Lieber: Sure. Part of what I was trying to do in the book is encourage people to be more emotionally intelligent and also more emotionally honest with themselves. And when I think about what I hope financial advisors are going to take away from what I've written--I know, advisors are always trying to figure out how to have better and deeper and more meaningful conversations with clients. And I love talking about feelings with my financial advisor and I just wish there were more people out there in the financial-services world, who would look their clients straight in the eye when they have a couple of kids with single-digit ages and say, "What scares you about college and paying for college and what's going to happen to your kid? Do you feel guilty about potentially not being able to pay for the whole thing? Do you feel duty-bound to do so because your parents did? And do you realize that it's a very different world here with very different prices from when you ran the gauntlet? And how does your own snobbery or elitism play into what you think the goals should be for your child?" And it's Carl Richards, the financial writer—who has probably been on the podcast himself--the way Carl described these things is, he said, they're sort of conversation bombs. So, I hope more than anything, I'm setting off conversation bombs that advisors can help put out and will be happy with the resulting rubble in their offices after everybody's done talking about it.

Ptak: Frank Bruni wrote a book a few years ago called Where You Go Is Not Who You'll Be. The thesis was that successful people come from all different types of colleges and universities and students and their parents should basically calm down and know that their life's success doesn't hinge on the school they pick. Do you agree?

Lieber: I do agree. What I wanted to do in The Price You Pay for College was look at one element of, call it, the glass-half-empty view of what Frank wrote about, which I thought he was 100% right and his book was incredibly reassuring. I just wanted to remind people that for a tiny percentage of the things that you can do in the world and the places you can do them, they are inhabited by elitists and sometimes they're inhabited by snobs. And so, when you go and you look at the data… There's all sorts of kids out there these days who want to become general managers of professional sports teams--that's become much more of a data-driven job than it used to be. And so, you could argue that the sort of raw intellectual prowess of the people who go and take those jobs is higher than it used to be. And sure enough, they have become the sorts of jobs where 20% or 30% or 50% of the people who have them come from the 40 or so undergraduate institutions in America where people have the highest SAT scores. And it is also true for the people who get investment money from Kleiner Perkins or Y Combinator for their startups. It's true for MacArthur Fellows. It's true in all sorts of areas in life and in endeavors. And so, you should just know that if you've got a 17-year-old on your hands, who really wants to be an investment banker, and they're trying to decide between Princeton or a full-tuition scholarship at Tulane, and Princeton is going to cost $75,000 a year, Goldman Sachs is probably not going to come recruit at Tulane. And they will think that there's something wrong with you if you made that choice.

Benz: When I've looked at the numbers regarding the financial return on investment for various college outlays, and I know you think that that's sort of a limiting way to look at it, but when I've looked at it before, using student's eventual salary as a proxy for return on investment, the good-quality state school comes out looking like a pretty good value, especially for in-state students. Would you say that's true or not so much?

Lieber: I think that's true. And what you'll find in certain states, at least where they make really good data available. And this is true in Texas in particular. What you'll find is that the flagship state school in Austin, which is where a lot of kids want to go, doesn't necessarily come out on top in terms of raw income. The thing I would encourage people to keep track of is that so much of this money stuff, when it comes to outcomes, is directly impacted by your course of study. I mean, that should go without saying. But you should really take a look. So, the thing that is less obvious is that by mid-career, the liberal arts majors tend to catch up with and often surpass the people who majored in computer science. So, one of the things you have to think about is, "What's going to actually happen to people mid-career; what sort of trajectory might someone with this major be on?" And it's the school's job to do a better job of explaining that and they often do a pretty bad one at that. So, unfortunately, it's just means more work for the college shopper and more research for families who are considering what the right options are. But I would encourage people to think about it as expansively as possible.

Ptak: It might be kind of tangled up, but which, in your opinion, should come first: visiting schools and homing in on the types of situations your child is interested in or figuring out the cost piece? You often hear about students falling in love with a school only to have the parents have to break the news that it's out of reach due to costs.

Lieber: I would ask parents to consider cost first before hitting the road, but only if you really understand what you are doing. One of the reasons I wrote the book is because there are so many otherwise intelligent and sophisticated people who run entities that the two of you would have heard of, who show up in my inbox in March and April each year, and they have no idea what has just happened to them. They don't understand that there's a new sort of parallel branch of financial aid often for affluent people that did not exist when many of us were going to school. They've been run over by a freight train, and they kind of realized that they did it wrong. So, don't go sit in your eighth grader down and saying, "All right, the rule in this household is great or state." Don't go saying stuff like that unless you know exactly how things work. Because it is not simple the way the pricing and the discounting system works in 2021.

Benz: Well, we want to spend a good amount of time on that, because it's such an interesting dimension of your book: the whole idea of merit-based aid. But before we get into that, I want to spend a little bit of time discussing the actual underlying cost of delivering college. You make the point in the book that of the roughly $30,000 per year spent on college per student on average, most of that does go to paying teachers and teaching. And you think that it's kind of a false narrative that amenities or administrative bloat are really the big factors. Can you expound on that?

Lieber: Sure, that people who work at colleges are expensive. They earn more money than average. They earn more money than average, because they train longer than lots of other people. So, economics would suggest that there would be a reward for that. And these are hard jobs to get, too. So, the professors, we know about. Administrators, it is true that there are more administrators per 1,000 undergraduates than there used to be. But I would argue that we get the administrators that we vote for at the ballot box and then that we asked for at the Bursar's Office, as far as the ballot box goes. Part of the reason there are more administrators than there used to be is because there are more regulations. There are more regulations because politicians put them into place, and they put them into place because we believe more in equity than we used to as a country all told. So, we want our disabled children to have access to these institutions. We want our kids with mental health conditions to have access. We want our daughters to have equal playing time and equal facilities when it comes time to play college sports. We want someone to answer the phone at 11 o'clock when the computer network is down etc., etc. And so, if we want fewer administrators and lower costs, we can make those choices at the ballot box as consumers, but so far, we haven't. And I'm not so sure that we should. And then, as far as amenities go, you know, they're very fun to look at and poke fun at, but they don't actually cost that much. And there are not so many of them that they have real impact on these universities' bottom lines.

Ptak: If the cost of teaching students and paying professors is the key reason college costs have been going higher, why is college inflation so much higher than the general inflation rate? I think you pointed to declining state funding as a factor. Can you talk about that?

Lieber: Sure. So, we should be careful with our terms, because there is the list price, the list prices for private and public, and those have indeed gone to the moon. But then there is the net price, the price that people actually pay after need-based financial aid and these other merit-based discounts. And the net prices have not gone up in a completely obscene way, particularly at the private colleges. Now, public colleges have their own issues, because in 2009-2010-2011, one of the easiest cuts for state legislators to make was to the subsidies that went to the undergraduate institutions, where those subsidies essentially serve to lower tuition artificially. And once you take those away, these state schools have to make it up by raising tuition, and often inviting more international students and out-of-state students to come in to pay inflated rates. So, that's kind of what's happened at the state-school level.

Now, in terms of the list price, that keeps going up, because the private colleges in particular hope against all hope and reason that they will continue to find sometimes desperate families, who are just willing to write a check to have some place for their semi-troubled kid to go or that more and more international families will come out of the woodwork and wow, our higher education institutions are breathing a sigh of relief right now about the change in the administration, because the country right now will feel more welcome to international students coming to study here as undergraduates than it did four years ago.

Benz: We want to get into the logistics of how to pay for college and these various forms of aid and so forth. But I'd like to talk about what to pay; basically, how to set a budget for college for your family, given your family finances. Do you have any guidance on how families can figure out what their limits are on how much to pay and what steps that they can take to rightsize their college buy?

Lieber: Well, it starts with knowing what you're shopping for in the first place. So, if we go back to this, three-tier definition of college, we're going for the education, for the kinship, for the credential. You as a family unit--you, your spouse, if you have one, your ex, definitely if you have one of those because that can get complicated, and your kid--you need to sit down and think about, "OK, what's the goal here?" Because if the goal is an intense form of learning, the life of a mind, then you may want to go to a small liberal arts college, a private one, where you will have close contact and access to professors and the small class sizes that make it easier to have good discussions, or maybe an honors program or an honors college at a state university. If what you care about is kinship, making friends, well, you can just plug yourself into a really great Greek system at a state university and maybe not pay as much as you might elsewhere. The credential, well, you know, it depends whether you want to become a nurse, all nurses or nurses if they pass their licensing exam, no matter where they went to school, or if you're searching for some sort of gold-plated sheepskin that will grant you entry into Kleiner Perkins and Goldman Sachs and Teach For America. So, much depends on what you're shopping for. And figuring that out is how you begin to create a budget.

Ptak: You've also made the point that college costs are increasing at a time we've seen another pretty big change on the personal finance front, namely, that we're all increasingly shouldering the costs of our own retirements as pensions fall away. How important is it for parents to determine their total college outlay looking through the lens of how well set they are for their own retirement and other financial goals?

Lieber: Well, this is the thing that's so hard about it. I mean, let's dispense with untrue maxims first. There's this old saw that says, you should preference saving for retirement over saving for college because you can't borrow during retirement. So, that's inaccurate on its face. You can borrow for retirement via a reverse mortgage. So, that's just not true. It also suggests that borrowing for college is necessarily like a good goal, and I'm not sure it is. It depends on the family. So, the conversation has to start there. And then, I think, much depends on the level of confidence you have both about your ability to work into your 60s, and also the willingness of someone else to employ or hire you. So, that's a complicated stew of personal health projections, generalized happiness, what you think is going to happen to the stock market after a couple of decades of pretty good performance on average. These are all things that are very difficult to see in a crystal ball and yet you still have to ask the questions.

Benz: You wrote at length in the book about some ways that families are trying to reduce their outlays for college. One really popular one right now, or one you certainly hear a lot about, especially during the pandemic, is to spend two years at community college and then finish up at a four-year school. You don't think this is the no-brainer that some make it out to be. Why not?

Lieber: I think the people who teach at community colleges are heroic, and I think they provide an incredibly valuable service to all sorts of citizens. If you want to use community college as a sort of money-saving hack, then you need to go in with eyes wide open. You need to find the community college that sends the most people each year to your intended four-year destination. You need an advisor at the community college, and you need an advisor already in place in the admissions office at the intended destination. And you need to check in with those people three times each term--at the beginning, in the middle, and at the end--to make sure that every class you're taking is the right one to make sure that the credits will transfer. Because if everything gets all messed up, it could take you five-and-a-half years to finish. Then you've missed 18 months in the workforce, and you've had a fractured undergraduate experience where you didn't get to establish four years of relationships at either place. So, it is not a no-brainer. But if yours is a family that just can't pay $100,000 for the flagship state institution, but you can go to community college essentially for free, live at home for a couple years, and then transfer in, well, then you're saving 50%. And that's awesome. But you just need to go in with a head of steam and a sort of Type-A approach to just really nailing the credits in the logistics.

Ptak: Wanted to turn to financial aid. You wrote in the book that the typical first-year full-time student got a discount of about 53% from the list price in the 2019-20 school year, and 89% of students got need-based or merit-based aid. So, if most families are paying about half of list price, are those discounts coming through need-based or merit-based aid?

Lieber: Well, it gets real confusing here, because the terms get confused and the institutions themselves are sort of cloudy about it. And they do this on purpose. I mean, merit aid is sort of a psychological head trick. You pat a teenager on the head and say they are deserving of money because of who they are and how they've performed. At the same time that you do that, you're effectively giving a gold star to the parent. So, if you are an institution and money is money, whether the family has need or not, you're going to use merit aid to help meet a family's financial need, because calling it a scholarship, calling it an academic scholarship is going to make people like you more. And so, to the extent that there are statistical studies and survey research about how much of this is going to merit aid versus need-based aid, I don't know that it's so meaningful anymore, because money is money and coupons are coupons. And hopefully, people who are shopping for college are just looking at the bottom line net-price cost of attendance and not paying attention to the come-ons and the fancy words they're using for the coupons that they're handing out.

Benz: So, let's delve into merit-based aid a little more. In what situations are schools particularly generous with merit-based aid? You note that the more selective schools tend to be less generous with it. So, let's just talk about that. As parents are receiving these offers, what should they know about the types of schools that are coming through with the best offers?

Lieber: We can divide it up into a minimum of four segments: maybe two for public, two for private. With the private institutions, there are the more-selective ones that offer merit aid. These are the Connecticut colleges, the Oberlins, the Macalesters, the Occidentals, the Whitman Colleges in Washington, USC, Tulane, Northeastern. These are colleges that in a variety of ways attempt to use merit aid to buy themselves more prestige. They reward the very best students with money and try to get them to come instead of going to the Ivy League, or Northwestern or something, in the hopes that having those kinds of kids around will attract other kids like them who maybe don't need an inducement. Now that everybody offers merit aid, it's a little bit harder for that to work. But now, everybody's used to getting it. And so, they're looking for it, and the schools can't very well take it away.

A few segments down in the marketplace, you've got private institutions that are giving merit aid basically to everyone--everybody gets a trophy, because the market has come to expect it. And some of them are just doing full-on tuition resets, taking their list prices down by $10,000 or $15,000. But now that people know to expect a discount, it's the sort of couponing like what went on with JCPenney 10 or 15 years ago, when they tried to yank all the coupons in one fell swoop and it nearly put them under. Nobody wants to be the JCPenney of higher education. So, that's the private side.

On the public side, some version of this has been going on for a fair bit. You've got the lottery-funded scholarships to try to get people to and through college. So, the HOPE Scholarship in Georgia was one. You only need a 3.0 grade point average to get a little money out of those programs. But then you have really interesting places like the University of Alabama, and when their subsidy was cut from the state legislature 10 or 12 years ago, they went like full bore on merit aid. Basically, what they did is, they jacked up their out-of-state tuition to the moon, like to $60,000, or something crazy all in. They started marketing the hell out of their beautiful campus, and the beautiful people who go there, and the awesome football team and the good time. And it worked like crazy. And all of a sudden, all these kids from Long Island and suburban Chicago, and Texas, were applying, and they were giving away a ton of merit aid. And basically, what they were doing is they were saying to these folks “OK, you apply, pay us $10,000 more net than what you would pay your flagship state university, we will give you a $20,000 or $25,000 scholarship, so that you can feel good about yourself, and everybody wins.” And everybody did win, except, say the State of Illinois University system, which was seeing such a brain drain, that the legislature created a $25 million pile of money to try and keep the smarter kids around and going to the flagship at Champaign-Urbana.

Ptak: You've also noted that the whole merit-aid process tends to be underneath the table in a way. It's certainly complex. And that tends to disadvantage students who don't have very engaged parents to help them. Can you walk us through that?

Lieber: So, again, we see tearing here. At the public universities, the merit-aid formulas and the rewards tend to be more out in the open. With private colleges, it's kind of like the Wild West. Schools that are a little bit more hard up for undergrads are transparent. So, if you look at Lake Forest College in Illinois or Wabash College in Indiana, their merit-aid formulas are right there on their websites in the form of a grid. If you look at Whitman in Washington and the College of Wooster in Ohio, they will let you call them up in September and say, "OK, here's what I got, 3.8 GPA and an ACT of 29, and what would you offer me?" And they'll basically do like a pre-read of your application before you even apply and so, you can expect roughly X in merit aid or maybe we're not going to give you anything at all, sorry. And so, you have some sense of what might be waiting for you if you apply. And then, the schools that have super-competitive, free-ride merit-aid programs, will only offer it to a relatively low percentage of people, they're not going to tell you anything. And so, you're trying to decide how to narrow your choices without having any idea like literally within a six-figure amount, what you might pay if you were to get in, and there is no market like that anywhere in the United States of America.

Benz: So, I want to talk a little bit about loans, which I know are sometimes considered financial aid, which is a little odd to me. But if loans are part of the equation of paying for college, how much is reasonable to borrow? We sometimes hear these rules of thumb about how much you should be comfortable borrowing for college. Is that a good way to think about it, to think about the student's subsequent potential salary? Or how should people decide how much is too much to borrow for college?

Lieber: I actually think it's possible that we worry too much about this now. So, 15 years ago, when private student loan lenders would still allow teenagers to sign for debt without a grown up, there were people who borrowed $100,000 for undergrad and got themselves into real trouble during the 2008-09 recession. Nowadays, you cannot get yourself into too much trouble as an undergraduate unless a parent or someone else cosigns for the loan. So, this is how it breaks down. If you want to borrow from the federal government, that you can do as an undergrad without parental involvement. But if you are dependent, they generally will not let you borrow more than…it's a low $30,000 amount.

So, why is that figure important? Well, when you go into repayment and you only have federal loans, there are all sorts of income-driven repayment programs that are available to you, if you get into trouble, if you get sick, if you lose your job. So, there's no reason that anybody who has only that debt needs to go into default or get into trouble. The people who get into trouble with federal loans nowadays are the people who start college but don't finish and have the debt but not the extra income to go with it and then fall out of the system and end up in default for years.

Ptak: You alluded to this before, but we are curious to know your take on parent loans, are they ever a good idea? If a parent is borrowing to pay for college, doesn't that also suggest that maybe their own retirement assets aren't what they should be?

Lieber: Well, parents may borrow for college for any number of reasons. Maybe they don't want to take money or tie capital up when they've got a thriving small business that is also hungry for capital. And so, I'm reticent to make too many rules of thumb for everyone. And also, it's like, what are we talking about when we're talking about borrowing? There's the federal Parent PLUS loan program, which is an easy place to borrow, because there's very little underwriting. You could borrow from a 401(k). You could yank money from your home equity. There's lots of different ways to do this. So, I'm reluctant to shame anybody who feels the need to do this or makes an agreement with their undergraduate that they're going to help repay the parental debt as well when they get out. I just think it's too personal of a decision.

But I do worry about the families that get to April without a clear framework, and then there is a very weepy teenager who wants nothing more than to go to the school that costs $20,000 more per year than the more prudent choice who manages to persuade the parent to cosign for private loans when the teenager says, “I'll pay for it, I'll pay for it, I'll pay for it,” and then, they're 23, and they're not able to do it. And then, you've got real problems on your hands.

Benz: What do the data say about students working while in college? Does it depend completely on the child?

Lieber: The data say that, if you don't do it much more than 10 or 15 hours a week, it should not affect your ability to have a successful undergraduate experience. And the colleges themselves often build it in, bake it into the financial aid formula, and the federal government supports it with work study dollars. And so, if you work much more than that, you're going to rob yourself of some of the experience possibly and also the time you may need to succeed, but that seems to be about the right number.

Ptak: If you had to redesign higher education, how would it look different than the system we have today?

Lieber: Well, I think the question we have to ask ourselves is that over the decades we have come to the conclusion that it is in everybody's interest for kids to go to preschool, and that should not have to cost money. And then, we made a decision that everybody should go to high school and that should not have to cost people money. Now that the economic data are clear, that college is intensely beneficial, both from a productivity perspective and an income-earning perspective, and that's the message that we send at all kids, but particularly low-income ones who are striving to do better for themselves, why are we not finding a way to make it free? That's the question that I ask myself. And what we're doing with our student loan system and the undergraduate debt that dwarfs what the undergraduate debt is in any other country, what we're doing is we're conducting like a giant decade's long economic experiment with no real controls and teenage borrowers are the lab rats. So, it doesn't sit right.

Benz: There have been lots of headlines over the years about whether student loan debt is our next looming financial crisis. Where do you come down on that?

Lieber: I don't believe the student loan system is a bubble that's going to pop, but what I think people don't understand and The Wall Street Journal flushed some really interesting data out is that now that more and more people are entering these income-driven repayment programs in the federal loan system, including people who borrow a couple of hundred thousand dollars each for graduate school, for professional school, is that we are on a trajectory to cancel, to forgive something like a quarter of all outstanding student loans eventually. So, why is that? Well, a component of the income-driven repayment program is that if you don't finish paying your debt after 20 or 25 years have gone by, the federal government will just wave it away. They'll say, "OK you've done your duty, you're not going to have to do this, we're not going to take money from your Social Security account. You're done." And the debt is forgiven. And at least under current tax rules, you have to pay taxes on it.

So, we're going to wipe a whole bunch of this money away one way or the other. And so, that's part of what's kind of looming over this policy conversation. I mean, if $400 billion, (with a B), if $400 billion in today's debt is eventually going to be dismissed, why are we putting ourselves through this? Should we think about what it would mean to cancel some debt now, and if so, for whom? The problem with that is that it's not clear what kind of stimulus effect it would have. But it might help a lot of people's credit, and maybe make it easier for them to make medium- and long-term goals happen a few years earlier.

Ptak: In the book you wrote of the process of paying for college: "But something isn't quite right in all of this and with this book, I hope to help us all begin to make it right." What are the key changes you'd like to see introduced to make paying for college less of a headache and stressor for people?

Lieber: Well, I'd like more transparency from the institutions about precisely how they discount and for whom. And I want parents to be better educated about how the process works, so they can find their way to value more readily, because I think there are all sorts of schools that just don't get on the radar of parents, because either they're far away, or they don't understand, say, that a private college with a pretty high list price is actually a really aggressive discounter. And that message just never gets conveyed, because the schools don't advertise the average price paid. And it's never been completely clear to me why that is. I think they want to maintain some mystery, and also the ability to continue to extract the full retail price from 10% or 8% or 6% or 4% of the undergraduate population. The farther that number falls, though, the greater chance there is that the people who are paying in full are going to feel like a sucker if that data comes out, and the schools don't really want to have to answer for that.

Benz: Well, Ron, this has been such an illuminating conversation. Congratulations on the book. And thank you so much for taking the time to be here today.

Lieber: It's my pleasure. Thank you for having me.

Ptak: Thanks again.

Lieber: Thank you.

Benz: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.

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Ptak: And at @Syouth1, which is, S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.

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