Welcome to an exciting and thought-provoking interview in our Future Proof digital short series! Today, we delve into the rising cost of education in the United States, joined by Ron Lieber (“Your Money” columnist in New York Times, Author of “The Price You Pay for College“) and Ann Garcia (Financial Advisor at Independent Progressive Advisors, Author of “How to Pay for College”). In this engaging Q&A session, we explore the factors driving these costs, the relationship between education expenses and career opportunities, and the actions that can be taken to tackle this complex issue.
Future Proof: Hello and welcome to a Future Proof digital short! I’m John Swolfs, and I’m joined by Ron Lieber and Ann Garcia. We’re going to be talking about the rising price of education in the United States.
Ann, the first big question to you. Why is the cost of college and university so expensive in the US?
Ann Garcia: That’s a great question! I think we spend a lot of time talking about things like declining state funding, improved services, and highly paid administrators.
One of the things we tend to talk less about is the huge number of people who are willing to spend exorbitant sums of money to educate their children. So if you think of it – if you’re the provost of Stanford and Harvard, and last year you turned away 10,000 people who were willing to pay $82,000/year to send their kid to college there, how are you going to price your college next year? It’s probably not going to be $75,000. That is an unfortunate reality of our system that I think too few people pay attention to.
Those of us in the same world are like, “Why would you do that?” but the reality is that there are just so many people who are willing to pay that much. Now the fortunate flip side to that is that there are larger numbers who are not willing to pay that, and so colleges are forced to discount their services in different ways to actually fill their student bodies.
FP: Ron, in your research, have you seen any link between the price of education and the career/opportunity that you have coming out of a high-priced university or college?
Ron Lieber: Not much!
So here’s the deal. There’s a fair amount of snobbery and elitism in the market for 22-year-olds coming out of undergraduate institutions. But it’s not widespread. You think about the people who work on Sand Hill Road in Menlo Park, or you think about the people who run McKinsey or Goldman Sachs, and the hiring pipeline for those 22-year-olds. Those people disproportionately hire from the brand-name schools for which people are willing to pay upwards of $85,000/year right now. We probably shouldn’t be surprised by that. And so if your kids are interested in becoming an investment banking analyst at Goldman or getting in the Y Combinator money as a start-up entrepreneur, or working for McKinsey or Bain someday, then they are going to have a better shot if you go to one of those name-brand schools and pay $85,000.
But it turns out the difference between a comp sci major or engineering major at a public institution like Purdue and a private engineering school like Lehigh, those starting salaries are probably not going to be all that different.
Much depends on precisely the kind of job they might be interested in and the school that they’re targeting.
FP: That’s really interesting! So then when we think about the price of college and university, is there something in your mind, Ann, that we need to do from a government perspective to regulate the cost? Is it something that people can do on their own to say that we’re not going to pay those prices anymore? What can be done to either help mitigate those costs or start to drive them down?
Ann: I would say that if we all decided that college wasn’t worth $80,000/year, college wouldn’t cost $80,000/year.
This is one of those classic behavioral finance issues though where you have parents who are talking about their children and what’s the best possible thing for my children, and sometimes to many people, it is perceived as the best possible thing for my children is this thing that really doesn’t make economic sense.
FP: Ron, you recently released a book on “The Price You Pay For College.” Ron holds up book and laughs What are some of the interesting things you found out when writing your book around paying that price?
Ron: Gosh, I mean, I think the thing that really hit me the hardest was that first of all, people don’t know what they’re shopping for when they shop for college. They rarely stop to actually articulate it! Usually, it’s some combination of shopping for the learning, shopping for kinship and the network – both the friends and the grown-ups who are going to help you out, and the credential, which can mean a lot of different things to a lot of different people, including the snobs and the elitists.
The other thing I think that the college shoppers and the people who advise them sometimes fail to recognize is that there’s just so much emotion involved in the decision-making process.
Ann tipped her cap to behavioral finance, and that is exactly what this is, right? People shop for college out of fear, fear their kids will go tumbling down the social class ladder. They shop out of guilt, that they’re not going to do the same thing that their parents may have done for them, and they shop out of this snobbery, or fear of other people’s snobbery. They want the window sticker in the back of their car. They’re worried what someone else may think of their own window sticker.
All of this stuff is swirling around in the mix, and we rarely talk about it aloud because it’s uncomfortable.
FP: Ann, you’ve also written a book “How to Pay for College” Ann holds up book and you’re also a CFP. What can Advisors or Planners be doing to help parents be prepared for that? Not necessarily to help parents pay the $80,000, but just putting a plan in place to help alleviate some of that.
Ann: I’m also a mom of two college students, so I’ve been through this with my own family. I think that where CFPs tend to fall down is we tend to give bad advice on opposite ends of the spectrum. One is “don’t save for college because you get more financial aid if you don’t save” or “college costs $80,000/year if you want your kids to go to private school, so you need to save $2,000/month every month from the month your child is born if you want to have that available for your kid.”
The truth is college is available for whatever price you are willing to pay. And so if you create a savings plan that works for your family, you will create a good set of choices for your family.
College seems to be the one big spending element that we plan for with utter disregard of what is affordable to us. Instead, if we coach our clients from the perspective of whatever you can do, you will find good choices at that price point, that will lead to good career paths.
I will say, as a focus group of two in my family, my two kids attend vastly different colleges. My daughter is at one of “those schools” with single-digit acceptance rates, and my son is at a large public college that accepts more than three quarters of applicants. They have virtually identical job offers for when they graduate from college. So you will find good choices if you choose based on what your family can afford and what is a good fit for your student.
FP: Ron, anything you’d add to that around trying to alleviate that burden for college? Is it about paying the full tuition, or is it more about making the burden less cumbersome when the time comes?
Ron: I think it’s more the latter. My general advice is to do exactly what Ann says in this realm – always. I featured her in my own book because I thought her approach was so level-headed.
I am the father of a high school junior and a seven-year-old, but a high school junior who I am literally about to take out on the road to see some more schools. I don’t know that I should be giving anyone advice right now because my head is so emotionally wrought about the whole thing even though I know better.
But I would just encourage people and advisors of people to be kind and gentle. You’re going to do the best that you can. You might want to think about the possibility of “what if we can put a third away, pay for a third out of current income, and maybe we borrow a third if we really need to” and the kids take half and the parents take half. That’s not a completely unsensible way to approach it.
If you tell a pregnant person or a couple that’s about to have a baby that it’s possible to certainly pull the bottom line for a state institution out for two kids with a low, three-digit monthly savings, that will probably calm them down a little bit, at least until they know what kind of kid or kids they have on their hands and what kind of income and assets they’re going to have available when their kids are teenagers.
FP: This is something that a lot of people have questions about, which is one of the reasons why we’ve invited both Ron and Ann to speak at Future Proof this September in Huntington Beach. We’re going to be taking a deeper dive into their expertise and into their books, helping our audience better understand how they can be helping their clients be better positioned to help their kids attend the colleges and universities of their choice.
Ron, Ann, I want to thank you for your time today. It’s been a pleasure, and I look forward to continuing this conversation.
Ann: Thank you so much for having me!
Ron: Excellent, see you all at the beach!
Don’t miss the opportunity to hear Ron Lieber and Ann Garcia speak at Future Proof, The World’s Largest Wealth Festival. Get your ticket today for a memorable experience of thought-provoking discussions, networking opportunities, and game-changing insights. We’ll see you September 10-13 in Huntington Beach, CA!
