Ron Lieber on How Parents and Kids Can Set a Budget for College and Not Break the Bank

In a recent conversation on The Long View podcast, we delved into the vexing issue of what and how to pay for college with an authority on the subject--The New York Times columnist, Ron Lieber. Lieber just authored an excellent new book on the topic called The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make, which we discussed at length during our conversation.

In the following excerpts of our conversation with Lieber, we explore the issue of how to set a budget for college given one's family finances. In addition, we include an excerpt in which we asked Ron for his perspective on how parents should think about prioritizing college outlays at a time they're already under increasing pressure in trying to fund their own retirement.

The complete podcast recording and transcript also cover a number of other related issues, including the state of higher education amid the pandemic; college students' adaptability to e-learning; how to quantify college's value; when not to attend college; making an "emotionally intelligent" college decision; the value of attending a state school; what tuition pays for and why the cost keeps rising; community college; the ins-and-outs of financial- and merit-based aid, and more.

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 are 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.