TOM YEAGER: Right behind us we have our new library. It was just redone. And then we're also standing in the middle of our quad. A lot of Adirondack chairs out there with people sitting out. We've got a bunch of trees and things, also. It's a gorgeous day, as well. The sun's out.
(SOUNDBITE OF SONG, "BLOODBUZZ OHIO")
MATT BERNINGER: (Singing) Stand up straight at the foot of your love.
JACOB GOLDSTEIN, HOST:
Welcome to PLANET MONEY. I'm Jacob Goldstein.
CHANA JOFFE-WALT, HOST:
And I'm Chana Joffe-Walt. And we're on the campus of Lafayette College in Easton, Pa.
GOLDSTEIN: On today's show, the price of college.
JOFFE-WALT: Tom Yeager (ph) is giving us a tour of Lafayette. He's a junior at the college, and he's practiced this sales pitch on countless prospective students and parents. His tour moves across the quad, from the student center to the new Lafayette library.
YEAGER: So we have a whole glass wall with all of our computers and stuff, which actually looks really, really nice at night when everything is lit up. And the student-to-faculty ratio is about 10- or 11-to-1, depending what department you're on campus. They have that really one-on-one attention with the professors and the students that makes Lafayette so special.
JOFFE-WALT: Tom Yeager is really good at this. He's enthusiastic. He knows his product well. He shows off half a dozen buildings, multiple libraries on Lafayette's campus. He notes that one of those libraries was voted the No. 2 most beautiful library in the world, just ahead of the Library of Congress. He points out Lafayette has the country's largest collection of historical figure paintings.
GOLDSTEIN: But there's one key fact not written into Tom's tour guide script - the price of this product that he is selling.
ROBERT MASSA: And the envelope, please.
JOFFE-WALT: You have to go to the admissions office and ask for that. This is Bob Massa. And he tells us that a year at Lafayette College in 2011...
MASSA: It was $55,688. That is an inclusive, comprehensive fee - tuition, fees, room and board.
JOFFE-WALT: Just ten years ago, a year at Lafayette College...
MASSA: In 2001, it was $34,051. And that represents a 63.5 percent increase in the list price over the course of ten years.
GOLDSTEIN: Prices for colleges all over the country have been rising a lot faster than inflation. This is something we know already. We hear about it a lot. Here is presumptive Republican nominee Mitt Romney and President Obama.
(SOUNDBITE OF ARCHIVED RECORDING)
MITT ROMNEY: There was a time when people, by and large, could pay for college with their summer job and by working during the school year. That's not the case anymore.
(SOUNDBITE OF ARCHIVED RECORDING)
PRESIDENT BARACK OBAMA: The challenge is it's getting tougher and tougher to afford it. Since most of you were born, tuition and fees have more than doubled.
JOFFE-WALT: So this is certainly a familiar conversation. But it turns out that when most people talk about college prices, the numbers that they're talking about - those are the wrong numbers. Those are not the numbers that we should be debating about. And, Jacob, we should say that in this show, we're going to be talking about private, nonprofit prices. What's happening with tuition prices in private, nonprofit colleges is basically just because the difference between private colleges and public universities is so vast that it's...
GOLDSTEIN: Totally different story.
JOFFE-WALT: Right. Different worlds. So today, private, nonprofit colleges and what is happening with tuition prices there.
GOLDSTEIN: Let's go back to what Bob Massa at Lafayette said, Not back to the numbers or the growth in the numbers. If you're a very close listener, you may have noticed he emphasized two words in particular.
MASSA: Sixty-three-point-five percent increase in the list price over the course of ten years.
GOLDSTEIN: The list price. If you're buying a car, say, you would call this the sticker price. At Lafayette, the sticker price - that's the price that's now about $55,000 a year. But most students at Lafayette - they are not paying that much. For instance, our tour guide, Tom, after he pointed out Lafayette's fine portrait collection, our producer Jess Jiang asked him this question.
JESS JIANG, BYLINE: So how much are you paying?
YEAGER: I think I got a little bit over half in financial aid. When I saw how much financial aid they were offering me, I actually looked at how much it was going to come out to be. And I was like, oh that's actually not much different than any other place. So I was, like, really happy about that.
GOLDSTEIN: The majority of students at Lafayette - they're like Tom. They don't pay the sticker price. So the number you really want, if you're thinking about the price of Lafayette or the price of college - what you really want is, how much do people actually pay? And when you look at the average amount people actually pay to go to private colleges around the country, you see that, over the past decade, when you take into account inflation, that number has barely budged.
JOFFE-WALT: Yeah. We talked to Sandy Baum of George Washington University. She's an expert of what's happening with sticker price and what people actually pay nationwide.
SANDY BAUM: We technically call that the net price. And what that number has been doing is going up very slowly. In other words, it keeps up with inflation. But beyond that, it doesn't go up very fast at all. One of the answers to the question of, why is the price going up so fast? - is that it isn't really going up as fast as you think. And when you ask them how much they think it does cost, they vastly overestimate.
GOLDSTEIN: Maybe one of the reasons people vastly overestimate what it costs is because this whole public conversation about college prices is so fixated on the sticker price, not on the net price, not on what students actually pay.
JOFFE-WALT: OK, which brings us to an obvious question - why list the sticker price? Why do colleges list the sticker price that most people don't pay? Why not, you know, list the average price that people actually pay?
GOLDSTEIN: Or why not list the sticker price but just have a big notice next to it that says, this is the most you could possibly pay, and you probably won't pay this much?
JOFFE-WALT: This is the absolute most you can expect to ever pay for college. No, there are many reasons why colleges list the sticker price. And one of them has to do with this bizarre way in which colleges compete. So private, nonprofit colleges are not in the business of making as much money as possible, but they are in the business of attracting the best students they possibly can. They want their class to be made up of the right mix of students.
GOLDSTEIN: This is Greg MacDonald. He's also in the admissions office at Lafayette. And you'll hear Bob Massa in this tape as well.
GREG MACDONALD: I wake up in the middle of night, thinking, you know, do I have enough males? Do I have enough females? Do I have enough engineers? Do I have too many engineers? Do I have enough kids from Long Island? Do I have enough kids from Seattle?
MASSA: Ultimately, our professional success depends on the whims of 17-year-olds and their parents.
MACDONALD: That's the business we've chosen.
GOLDSTEIN: So Greg MacDonald wakes up in the middle of the night, worried about, is he going to land the right students? One of the most important tools that Greg MacDonald and Bob Massa have when they're trying to land that right mix of students is offering a big discount off of that sticker price - off of that list price. You know, you have this $55,000 number listed, but they can offer need-based financial aid to students they want. And for students they really want, they offer merit scholarships.
JOFFE-WALT: Yeah. Lafayette - if you have great grades, great SAT scores, and you're a really excellent candidate, they will give you $20,000 off the sticker price to come to their school as a merit scholarship. Here's Bob Massa again.
MASSA: Families think that their sons and daughters are awarded a merit scholarship because of the fact that they're wonderfully smart and talented. And, in fact, that's part of it. But the bottom line is the primary reason for awarding a non-need-based merit scholarship is to change a student's enrollment decision from another institution to our institution. That's why colleges do it.
MICHELE TALLARITA: My mom opened it. I was in gym class in high school.
JOFFE-WALT: This is Michele Tallarita (ph). She's sitting in Lafayette's beautiful library. She is a senior, and she is living proof that merit scholarships - they work.
TALLARITA: My mom opened the letter. And she called me and told me I had gotten the Marquis scholarship. And I was like, oh. And she was like, it's a humongous scholarship. I'm like, well, that's awesome (laughter).
GOLDSTEIN: If you're Lafayette College, you want Michele on your campus. She was her high school valedictorian. She had good SAT scores. She's charming. And she's the kind of 21-year-old who just wrote a novel.
TALLARITA: It's a young-adult novel. It's a mystery. It's called "Sasquatch Barbershops And Other Ways My Freshman Year Was Hairy."
JOFFE-WALT: So Lafayette wants this student. But originally, Michele did not want Lafayette. She was leaning towards Villanova until Lafayette offered her this huge scholarship.
TALLARITA: I was really excited (laughter). It was exciting to see a scholarship of that size coming from this, you know, school that when I went to I was like, this is ritzy - oh, my gosh (laughter)
GOLDSTEIN: That right there - that is part of the reason colleges list these high sticker prices. Michelle's scholarship is a huge discount off of a really high sticker price. So let's take a simple example. Say I'm shopping for a shirt. And there's one shirt that's $30, and there's another shirt that's $30 marked down from $50.
JOFFE-WALT: You want the marked-down shirt.
GOLDSTEIN: Yeah. I'm going to get a deal. Yeah.
JOFFE-WALT: So the sticker price is there, in part, to communicate something to students. Essentially, it's like the same thing that the tour guide wants to communicate to visiting families or the admissions officers, you know, personally want to tell their very favorite students. It's there to say this place is really special.
BAUM: It says to them, wow. This must be a great school because, otherwise, it wouldn't be so expensive. And there is actually a lot of evidence that people like high price tags and that they would rather go to a school that has a high price tag but gives them some help paying that price. That makes them feel wanted. It makes them feel like they're getting a good deal. And many colleges think that if they lowered that sticker price, people would think they weren't so good. There's sort of a Chivas Regal effect that people like that high sticker price.
GOLDSTEIN: Now, a high sticker price is not just a way to offer big discounts to everybody. There are indeed some people, a lot of people, who do pay retail. For these people, the sticker price is the real price. It is what they really pay. So remember Tom, the guy who gave us the campus tour who pays about half price? Our producer, Jess - she also talked to Tom's roommate, Zach Sigda (ph). And Zach is in a different boat, a much more expensive boat.
JIANG: How much do you pay to go to school?
ZACH SIGDA: Fifty-six thousand dollars a year.
JIANG: So full price?
JIANG: Full price.
SIGDA: Full price.
JIANG: Less than half of the students here pay full price.
SIGDA: Yes. I mean, I wasn't really spoiled for choice of if I wanted to come here or not. I mean, that was what it was. Is it worth it? Is that what you're trying to get at a little bit? I would say - I mean, you can't put a price on education. So - I mean, they do. (Laughter). But for us...
JIANG: And you did because you're willing to pay it.
SIGDA: That's correct, I guess. Willing and able to pay.
JOFFE-WALT: Jacob, every time someone says to us, you can't put a price on education, you wince. You, like, die a little bit inside.
GOLDSTEIN: At least Zach sort of got the joke here, right? Because, obviously, you can put a price on education, and you do put a price on education. And having a high sticker price lets schools like Lafayette offer a huge range of prices to its students. So there is not one price you can put on education. You put tons of different prices on education. So for students like Zach, who are willing and able to pay full price, the price of an education is $55,000 a year. For students with a lot of financial need who Lafayette wants, the price is lower. For students who are amazing students who Lafayette wants to give a merit scholarship to, the price may be lower still.
JOFFE-WALT: And the higher the sticker price, the more you can vary the prices that you offer to different students. Sandy Baum with George Washington University says there is a logic to this.
BAUM: It does make sense to have a crazy high sticker price and lots of discounts, and that's why it exists. It's not that somebody was trying to make life as complicated as possible for students. It's really not. As long as there are students who are qualified but not the most qualified, who are able and willing to pay a high price, absolutely. It really does make sense to get more money from the people who can afford to pay, so that you can charge lower prices to people who simply would not be able to pay that price. Nobody's forcing anybody to pay the $55,000. People seem still willing to pay.
JOFFE-WALT: For now. There is, of course, some line that, you know, if Lafayette was $500,000 dollars next year, probably, people like Zach would say no. But for now, people like Zach seem willing and able to pay that price.
(SOUNDBITE OF SONG, "BLOODBUZZ OHIO")
BERNINGER: (Singing) I still owe money to the money to the money I owe. I never thought about love...
GOLDSTEIN: This is the first of what we hope will be more than one shows about college...
JOFFE-WALT: We did not commit.
GOLDSTEIN: ...And the economics. So please send us your ideas for more shows. You can email us at email@example.com.
JOFFE-WALT: You can find us online at npr.org/money. I'm Chana Joffe-Walt.
GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.
(SOUNDBITE OF SONG, "BLOODBUZZ OHIO")
BERNINGER: (Singing) I'm on a bloodbuzz. Yes, I am. I'm on a bloodbuzz. I'm on a bloodbuzz. God, I am. I'm on a bloodbuzz.
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