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The problem isn’t that college costs too much — it’s that we often have no idea what we’re paying for.
This is the conclusion drawn by New York Times reporter Ron Lieber, who turned his years covering personal finance and college saving into a new book called The Price You Pay for College, which comes out Tuesday, Jan. 26.
Planning for college should be more like “shopping for a home or a car,” says Lieber.
“I’m trying to raise an army of people to ask better questions and demand more. The schools owe us way, way more in terms of data and answers and specific information to help us determine value. It is just not right that we know so little.”
The good news is Lieber believes this is something we can fix, with an approach that puts more clarity and understanding in the hands of parents and anyone else who may find themselves on the receiving end of a college tuition bill.
Lieber talked recently with NextAdvisor about the price of college, admissions tricks most parents don’t know about, and why “scholarship” has become a meaningless word. The conversation has been edited for length and clarity.
NextAdvisor: How does better knowledge about the cost of college help parents pay for it?
Ron Lieber: I believe every flagship state university has the ability to deliver $100,000 in value, probably a lot more. And I do believe that many private institutions have the ability to deliver $300,000 in value.
But if we don’t know what we are shopping for in the first place, and if we are not asking the right questions about the things that are important to us, it greatly reduces the possibility that we will be getting what we paid for. So I just want people going in with a more explicit set of goals about what college is and what it’s for and how best to extract that once they’re there after they have shopped for it more intelligently.
My own children are 8 and 5 years old. Our college saving plan is … vague. How hopeless is it for me already?
Oh, I don’t think it’s hopeless at all. What I would encourage people to do whose kids are in the single digits, and still feel like their plan is kind of vague, is get together with your spouse if you have one, or your ex if you can bear it, and really think. What kind of college did we go to? What would that kind of college cost in today’s dollars? How did our parents help or not help us pay for it? How much debt did we have? How does that feel, if we still have the debt? And what can we reasonably promise to our kids, and what can we reasonably expect for ourselves?
What emotional factors should parents plan for when it comes to saving for college?
Any big financial decision — and many small ones too — involve emotions that we can often put names to if we’re paying attention. Paying for college just hits every one of those buttons. It’s our children, and so of course we’re going to be vulnerable to letting our emotions get the better of us. So from the very beginning of this project, I was hunting for the feelings that could most readily mess people up.
The first one is fear, of tumbling down the social class ladder—that if we constrain our kids in some shape or form, we will cause them to fail and it will be all our fault as parents. Then there is guilt, that we chose the wrong profession or job or city, and now when it begins to to appear as if our kids’ choices might be constrained because of that, we feel so badly about it that we want to do anything possible to give them whatever it is they want, even if it’s not what they need.
I’m trying to get people to identify these emotions, wrestle them to the ground and attempt to keep them at bay. But it starts with awareness, which most people don’t have.
Are there any clear financial markers parents should have in place before they start saving for college?
There are a few basics that are probably true for most people. If there’s an employer match on the table at your workplace for saving for retirement, then you absolutely should be maxing that out because it’s free money. If you have student loan debt that for whatever reason is accruing at an interest rate that’s higher than what you’re likely to earn in a 529 plan, then you probably ought to work pretty hard at paying that down. Beyond that, so much depends on your personal circumstances.
Here’s what I can say: I haven’t run across very many people who regret having saved for college. And I don’t run across very many people who believe they oversaved.
What would you advise parents who are turned off by the restrictions on 529 funds that can only be used for tuition, compared to an IRA that could be used for retirement, college tuition, or even other expenses?
I don’t have a problem with people wanting to maintain flexibility for themselves. But if there’s any chance your kid goes to college, why not avail yourself of the incredible tax breaks — often at the state level and always at the federal level — that come with [a 529 plan]. If you’re feeling squishy about it, do both! Have your Roth IRA, put a little money in a 529 plan, and it’s college savings diversification. Then you get the benefits of both.
What surprised you most in the course of researching and writing this book?
What surprised me was just how much the schools are doing with personalized data about our teenagers.
They have all of the information that students fill out on the PSAT and then they are matching that against enormous databases that they maintain on people like your teenager, who are from the surrounding community or from the high school that they come from who have applied in the past. And then they’re tracking your teenager’s behavior and response to text messages and emails and website visits, and direct mail. And then they’re triangulating all of that in a giant database, whose sole purpose is to figure out just exactly what price to charge the family that will make it feel like it’s getting a good deal, and it’s getting a “scholarship” on the basis of this child’s merit but was really just designed to give the lowest possible discount that will cause you to say yes but not $1 more.
There’s hundreds of millions of dollars spent each year on this machinery, and I think people just have no idea.
5 Quick Things Ron Lieber Wants You to Know About the Cost of College
In a rapid-fire round of questions and answers, Lieber offered his quick thoughts on some common terms and concepts that factor into planning and paying for college:
1. Gap year
Every single person who is thinking about college should also think about not starting college right after school. Not because gap years are for everyone, but it’s now clear from the data that people who take a year between high school and college get better grades than those who don’t. And anecdotally, it is also clear that they get better jobs after. So if you’re a parent who cares about good grades and good jobs, then you are not doing your job unless you put a gap year on the table.
2. Community college
A terrific way to save money. But you have to go into it with an enormous head of steam and a really strong game plan. And that gameplan has to include a counselor at the community college, and a counselor at the intended transfer school who you’ve already identified ahead of time. Before you even start the community college you’ve got to have both those people on speed dial, and like three times a semester — before you register for classes, during the semester, and after — you’ve got to be checking in with both. With the goal being to get in and out of community college in two years and then get to the intended destination and get out of there in two years.
3. Student loans
A totally reasonable tool to use, as long as you’re sure you’re going to be able to finish [your degree]. And as long as you think extremely carefully about whether you really need to or want to borrow any more than the federal undergraduate student loan limit, which is somewhere in the low $30,000 range.
4. Private college
So many private colleges discount a lot. Not only on the basis of financial need, but on the basis of so-called “merit aid.” So don’t dismiss a school out of hand just because the list price is high. Try to figure out what someone like you might end up paying. If you have financial need, you can get a pretty good estimate from what’s known as the net price calculator. And if you don’t have financial need, and the list price is $75,000 and you and your parents are definitely not willing to pay that at that school, then use the school’s common data set to try to tease out the odds of getting merit aid and figuring out how much that might be, which you can back into using a couple of pieces of data I talk about in the book.
An extremely complicated term that nobody can really define anymore, that is often used in a marketing capacity by schools to make kids feel good about themselves. And it’s also used by outside profiteers to convince unknowing families, or trusting families, to pay hundreds of dollars to services that claim to be able to present scholarship opportunities to you, which if they do exist, and you do win them, they might just end up being subtracted from the grant money that the school would otherwise give you.