Bankrupt U: Money Trap 3: Your college offer letter is actually a 'demand for payment'

Welcome back to the show for another episode of Don't Let College Bankrupt You, and it's the letter U, not the word you. And my guests, as usual, are two college professors, Drs. Bill Quain and Joe Kroby, who pay you back. During this series of shows, we will talk about what colleges don't want you to know and provide some guidance on how to keep your costs down and prepare for a more successful post-college career. In this show, we're going to back to look at money trap number 9. This is an interesting one, as most of them are. Your offer letter is actually— get this— your offer letter is actually a demand for payment Joe Carabi, Bill Quayn, it's always a pleasure to have you on the show. Joe, page 56 in Bankrupt U, and you know the subheading for this book, for those listening for the first time, Bankrupt U: Students, Parents, and Alumni Are Going Broke and Colleges Don't Give a CRAP. And CRAP is an acronym for something else. We can talk about that another time. But in page 56, money trap number 3, your offer letter, Joe, is actually a demand for payment. I'm going to read from that page. We will say this right up front, you write, most colleges, Bill, don't want you to know how little money you are getting from them and how much it's going to cost you. That's quite an indictment.

Well, Gary, let me just answer the question this way. Let's go back to something we've said all the time, and that is that colleges are a business, and their job is to, quote, stay in business. So you're absolutely correct. You're going to get this, well, it's generally called an offer letter. What Bill and I often say is that the first offer is the worst offer. So it's a demand for payment because number one, they're not going to let you attend any courses until you actually pay. So the bottom line, there's no credit involved here. You need to pay in order to have access to the first day of classes. The offer letter is a demand for payment because it's similar to buying a car. If you walk into a car dealer, they're going to say, if you want this car, then we need X amount of money, and you're going to haggle a little bit and so on. Well, people don't realize that the same thing can happen with college, right? So one thing I'd like you to remember throughout this, throughout this show is that whenever you receive that college acceptance letter, that offer, that there's no rush. All righty. Normally it's going to come with a May 1st acceptance date. So my recommendation to you and Bill and I have always talked about this is there's no rush in responding. Hold back. Alrighty. And as we get through the show here, we're going to talk a lot about, you know, why hold back and why that's an important point.

So, Bill Quayn, same page, one of the subheadings reads, warning, warning, you might be mortgaging your future. I've read about that before, but how do you guys write about that in the book Bankrupt You?

Well, you know, a lot of people take out loans to pay for the college. But when you're really taking out a loan to pay for your future, because no one goes to college because they just want to go to college. Well, I mean, the kids always do, or likely do. But as a parent, you don't want to send your kid to college so they can have a great time for 4 years, You could always send them to a camp at a lot less money than that. So, you're taking a mortgage on your future. Now, here's a really interesting thing. I don't know how many people know how to create a personal balance statement. Balance statement is where your assets are on one side, your liabilities on the other. If you take a mortgage on a house, for example, you've got an asset on one side and you got the mortgage on the other. So it kind of offsets each other.

Yeah.

If you buy a car, even though a car depreciates, you know, you at least you got something to show for your car loan. College, you have nothing to show for it. You get a diploma, but that doesn't mean a thing, you know. So the problem is in college, it's not the diploma that's going to, you know, help you have a great life. It's what you able to do, you know, to, to, to attract money to you. So, uh, if, if you're, if you're betting big on that by taking out a loan, you, you've mortgaged your future. And, and if, if you go into that future with, uh, with nothing out of it, uh, nothing to show for it, nothing on the asset side, you haven't improved as a human being. You're not more valuable to somebody else, you know? And so when you look at your offer letter here, you gotta look at this and say, wait a second, let's take a good look at what I'm paying. And what do I have to add to this myself in order to get some money out of it?

So, Bill, let me stay with you with the follow-up. So, of course, all families, or almost all families, want financial aid. And you write about this in the book. There are 3 basic types of financial aid. Go over that from your perspective.

Well, there's, uh, there's grants and scholarships, which, which, by the way, Gary, as you always point out on, on your podcast this week in college viability. And Joe and I are big believers in this. There are very few actual scholarships out there. They're mostly just discounts on tuition, you know. So the colleges set the tuition high so that they can make you an offer that seems like a scholarship. They call it the presidential scholarship or, you know, the, you won the lottery scholarship, whatever it is, you know. And, and you, it, you, And people think there's a pile of money that somewhere someone's giving to the college to offset. No, it's just a discount. They're just saying, "Oh, well, listen, we set our price at $50,000 a year for tuition, but we don't expect you to pay that because you're smarter than that and we would like to get you here. So, we'll give you $10,000 off." And you're jumping up and down. You're thinking, "Man, this place really wants me." Now, they're just discounting to get you there. So that's, that's grants and scholarships. Number 2, I guess. What do we have? Loans. That's right. Yeah. Student loans.

Yeah.

And these come both federal and private. You know, these are, these are mortgaging your future. The college is going to use words in the offer letter to confuse you so that you— it looks like they're giving you that money. You know, and they're not. They're telling you you can take a loan for it. And oh, by the way, all that money goes to us that you take a loan for. And then finally, there's student jobs, which oftentimes are, you know, not high-paying jobs, but they're convenient. They're on campus. The problem with that is they're going to write that in the— let's suppose they think you're going to make $2,000 a semester on your student job. And so they'll put that in the offer letter as if it is a scholarship or, you know, it comes off the price you're going to pay. And so they take all these things and then they say, oh, so you're only going to pay this. Now that what you're only going to pay is that, yes, but you might have a student job, you might have loans, all those things. It's just It's used car salesmanship, you know. Yeah, I remember, you know, I don't know if most of our viewers now know, I'm almost totally blind. And I went to get a— I went to buy a car one time with my wife, but I was sitting there doing the transaction. And the car dealer said to me, he said, Bill, because they always use your first name a lot, you know, Bill, what would it take for you to drive this car home today? And I said to him, well, probably a bigger miracle than you got, but I'm listening, you know. So yeah, so that's, that's what the colleges are basically fishing for you here. They're sending you this letter and it's a fishing expedition for them. And they're saying, let's see if this will work. And, and as Joe said, don't jump on it right away. They're just throwing some bait out there for you. Sit back, let them come back with something else because if they want you, they might make a different offer.

Yeah. So, Joe Kroby, get your calculator out. So, you get that discount, you get that, or your fingers and toes, either one works.

That usually works.

And so, you go and you get that discounted offer, and Bill nailed it really well. There's no money transferring hands almost in all cases, but that discount for the first year, It's my understanding, I'm being somewhat facetious here, it's my understanding that colleges raise their price almost every year for tuition. And so, that discount that you got in the first year rarely applies to the 4 years or 3 years that follow. Is that correct?

Well, yeah, there's a couple of things that you're saying right there that are really pertinent to the conversation, Gary. Number 1, first of all, there's no guarantee that that scholarship that you get during freshman year is going to extend beyond that. Secondly, there's little, if any, evidence that colleges will increase the scholarship offer consistent with their increase in tuition. So you're going to fall behind from that perspective also. And listen, there's another important factor here, and I want to just quickly pick up on what Bill said. All right. Bill mentioned, as I did earlier, about Don't jump on that offer. All right, look, here's, here's a little bit of insider information. And that's, that's what the show is all about. Here's what you don't know. What you don't know is how many students that college has to bring in, in order to meet their projected budget. You don't know that. And the longer you wait, the more you're going to know for this reason. If you wait until late April, you're going— and they have not met their quota— you're going to get much more interest from them and you're going to see that quote offer gradually increase. Now, Bill made the point about loans and jobs and so on. Let me just say this. I call grants and scholarships green money, meaning go for it. Yeah, everything else is red money, which means stop and look really closely.

Yeah, right.

So, so you want to maximize the green money and minimize the red money, and I think that's what Bill was talking about.

Yeah, and even, you know, even I'll make the argument, Joe, and I'll stick with you on this follow-up, that, you know, even in late April, if a college by some miracle or some chance has made its budget they're still going to be willing to negotiate because your net— your tuition drops straight to the net because they already covered the cost.

Is that fair?

Yeah.

Well, it's more than fair. It's absolutely— not only is it accurate, it's a game that colleges will play. All right. And go back to what we said there. Your first offer is the worst offer. So you know what? Even if the exact same offer is on the table in April that was on the table in January, you haven't lost anything. You haven't lost a thing.

Yeah.

All right. So you're absolutely correct.

One of the colleges you can go to and say, hey, so you really don't want to fall in love. Is that kind of what you're saying? Don't fall in love with a single college.

Yeah.

Well, and that's why you want to have a variety of schools to choose from. That's exactly right. You know, Bill tells the story that when you visit colleges, you know, there's a difference between buying a sweatshirt from the college and buying a keychain. All righty. The sweatshirt tells you that you love that place and you're sending a signal to mom and dad that this is where I want to go. You know, the keychain, that's a different story.

So let me add to that a little bit because what's this, May 7th today?

Yeah.

Guess.

Yeah. So, Joe and I follow, and I'm sure you do too, Gary, a lot of Facebook groups and that sort of thing where parents are talking about how you're going to pay for college and all that kind of stuff. And what we're seeing this year is a lot of people are saying, hey, a college offered my kid the $10,000 presidential scholarship. And we decided to go someplace, my kid decided to go someplace else and we put a deposit down and then we got an email from the college saying, oh, you know, I'll tell you what, we have another, it's called the vice presidential scholarship for another $10,000. So even after that May 1st date, I mean, listen, you can't play with that. I mean, you gotta, Except the one you wanna go to. But you can expect to get, if the colleges haven't made their quota, you can expect to get at least from some of the colleges another offer that's even less after the May 1st deadline. Now if you listen, and people were asking, well, can I change? Sure you can. You're gonna lose your deposit. That you put down. And you got to be careful because you're going to make sure that the good dorm rooms aren't taken for that college. But so, you could switch. Yeah, absolutely.

So, let's go back. And you talked a couple of minutes ago, Bill, about the car sales analogy and the cute story about driving off the lot. That's really the only difference is colleges are generally recognized as august bodies But they're still using the same tactics as car sales. Is that right?

Listen, every salesperson uses the same tactics as car salespeople. You know, car salespeople get hung with a bad reputation, but sales are sales. I mean, you know, you test out an offer, you go back and forth. I remember we built our house in Orlando when Jeannie and I first moved there. Before we had kids. Well, let me just remember. Okay, I was just thinking about before we had kids, but anyway, and being happy. But the— now I love my kids.

The—

so we were putting— we got to go buy appliances. So I went to Sears and I had picked out, you know, everything— dishwasher, washing machine, dryer, refrigerator, microwave, all that kind of stuff. And I I said to the woman who was a salesperson, I said, you know, okay, now what kind of price can you give me? I'm buying all these things. And she said, oh, we don't do that at Sears. And I said, okay, I don't buy— I'm not buying it here. So I left and I went to Rick's Appliances. And I remember Rick, I first went in there and I told him what I was going to do. He says, well, let's go take a look at something. We found some stuff and I made him an offer. And he says, Bill, you're killing me. And I knew, I knew I had a deal going here, you know? So you just gotta, you just gotta realize that every salesperson, no matter what the product is, no matter what the service is, there's a price and then there's a price.

And I remember buying a car many years ago and the sales rep said, I've never been able to give this kind of deal to anybody else before, trying to compliment me, trying to compliment you, me on being such a fine negotiator. And trust me, gentlemen, I'm not. So, so Joe Carabi, so Joe Carabi, these offer letters— and again, we're talking about money trap number 9, which is your offer letter is actually a demand for payment. And, and if you're watching this show for the first time as a parent, student, loved one, whatever, these offer letters are not even close to being standard. They're more confusing than What, Joe?

Yeah, um, well, put it this way, they're pretty— I think they're intentionally, you know, well, that sounds devious. I'm not sure I want to say the word, quote, intentionally, but I really mean intentionally, so I guess I will use the word intentionally. I look, these letters are crafted in such a way, and you know, I've always believed that that people are very intelligent and I don't like it when people minimize other people's, well, just very simply, their intelligence factor. People are pretty smart, but colleges will mask what they give you. And as Bill said earlier, they'll make it seem like they're, quote, giving you money. Unfortunately, that's not accurate. And every college is different. I mean, you can go to 10 different colleges and get 10 different offers, and they'll all be— they'll use different terminology, they'll use different stipulations. Look, you've got to be an informed consumer. You know, it's that simple. And if you— if unfortunately, if you don't feel comfortable doing that, you got to get somebody independently who can help you. Already, and the college, yeah, the college is going to offer their people, but remember, you know, they're trying to get you to come there. They're good, obviously they're going to be honest, but they're not going to give you the tricks of the trade. So if you can't do it yourself, you've got to be able to go out there and get some help.

Great point. And Bill, you know, something else to ponder on that, and you guys write in the book, and this is on page 58 in the book, Uh, Bill Quayne, more than 33% of the colleges who submit these offer letters didn't even state how much it would cost to attend the school. What's going on there?

Well, they don't— they just don't want you to know, uh, you know. So now there has been, uh, some, some, some change that is, it's getting a little bit more transparent, but it's, it's still— there's still a lot of obfuscation there, you know. And by the way, You can tell I'm a college professor using a word like obfuscation.

Yeah, hell yeah.

You know, so they're just, they carefully craft these letters. They use language that purposefully, I won't, I'm careful with that too, Joe, but that accidentally mislead you. But you know, as I always say to people, if it's accidental or on purpose, Doesn't matter if you're hurt, you know. So you, you really got to take your time with this and, um, uh, you know, look at exactly what they're offering you here and, and balance that against what the cost of that education is.

Gary, excuse me, Gary, may I— can I just quickly add something to that?

Please.

It's, it's a word that we haven't, we haven't used, and that's called a fee, right? Remember, there's, there, there's tuition, and then what colleges do very often is they will they'll include fees that don't appear in tuition. And these fees can add up very quickly. For instance, a lab fee or a dorm fee or a cleaning fee or whatever it might be. And they could add up to a couple of thousand dollars. So, you know, you've gotta be aware of that too, that that may not show up in the offer letter.

[Speaker] So I wanna talk about artificial intelligence. We had talked about that before we started recording the show today. Before we do that though, we're talking about comparing offers from different colleges. And I mentioned to both of you that there is a website called tuitionfit, tuitionfit, one word,.org, where you can actually go and get a free comparison of what your college is offering you and compare to what others have offered in similar degrees. There's much more behind it. There's a paid version that offers you much more information. But kind of leads us to this moneyball era. And again, Bill and I, you were talking about, you and I were talking about that before we started recording today. Talk about, well, how data and even artificial intelligence, Bill Quain, might help students and their families get the best possible deal and even choose the best possible college for them.

Well, look, the very first thing to realize, Gary, is that AI is being used in favor of the college all the time. I just, I laugh about this so much because colleges are so crazed about AI. For their students. They are so worried that students are going to use AI to, you know, to pass tests and that kind of stuff. And there's some worry about putting colleges out of business with it because, you know, why do you need to spend 16 weeks in a course when you can just put 2 or 3 prompts in ChatGPT and get the same information? But so, That movie Moneyball, folks, you gotta, if you haven't seen it, it's 2011, it was released. It's just really great. It talks about how baseball teams can use, well, they weren't using artificial intelligence at the time. They were just using plain data to determine how could they get a better player at a lower price? Well, this is exactly what colleges do today, but now, But now think of the data they have from you. From— you fill out a FAFSA, you told them what high school you went to. They know your zip code. They know a lot about you, or at least people like you. And they've dealt with you or people like you before over the years. This is your first time. And they have built up these algorithms that are going to come up with a little window there where they, they think, okay, a person like you, uh, with your kids' scores, you know, that kind of stuff, whatever, you're— where you— the, the kind of house you probably live in, etc., etc., uh, the kind of profession you're in, uh, we can offer you this much and, and you'll be happy with that, you know. And, and so they're using that AI, uh, and it's very sophisticated. It's, it's called, uh, enrollment, enrollment development or something like that, and management. And Joe, you alluded to this just a little while ago. This is a— it's a razor's edge where they're balancing on that. And they are very sophisticated with it. So, but here's the thing. Here's the thing. Once you realize that, you know, once you realize that, you realize you have some power. And you can do the unexpected. You can say this isn't enough, or you can remain silent, you know, and we see people a lot of times they get the offer and immediately they call the college and ask, you know, can you do better? You know, well, what's that? What's that telling the college? Well, you know, we're really interested and it might not take that much to get us. You know, uh, I'd wait. Yeah, I'd wait.

Okay. And I'm gonna go back to something you just mentioned, Bill, and that is the FAFSA. And of course, FAFSA is when families give colleges all their financial information. And this is a Gary Stocker plug for the College Viability app for students and families. My app gives students and their families financial information about the college. That only makes things fair. Colleges know your finances.

Exactly.

Using my tool gives them a chance to learn about their college finances. Bill, what do you think about that?

Well, Gary, I, you know, and I just think, you know, you have, you have a couple of different versions that you've got, one that colleges can use, you know, to learn about themselves and their competitors. But you also have a version for families that's really reasonable. And hey, listen, families, you know, parents, you want to play Moneyball. Get this College Viability app from Gary and now you're in the driver's seat. Well, you're not in the driver's seat, but at least you got a fighting chance because you're going to know all kinds of statistics about that college and you'll know how much they're willing to discount or at least get a sense of that. And if they're making you an offer, you know, this is very helpful for you.

And so Joe Carabi, again, one of the co-authors of Bankrupt U— and that's the letter U as in university, I presume, not the word you— again, we started off the show today, Joe, talking about— I challenge you with an indictment. It's kind of a second version of that same indictment you write in the book, one of the section headings. I'm going to read that. It's all part of the, in quotes, 'Never let them know how expensive we really are,' end quote. Game. What are you talking about there?

That all goes with the game within the game, Gary. This is what we've been saying all along. You know, there's the rules that everybody sees that are, that are advertised, that are, that are, that are just out there in conversation. Look, here's the— there's a bottom line to this whole thing, right? If you like a college, you want to go there. If a college likes you, they want you to go there. There's a very simple solution to this. The college wants you to go there and they want you to pay as much as you can to get there.

Okay.

You want to go there to pay the least amount you have to pay right now. So that's the— I'm a firm believer of the end in mind, keeping the end in mind.

Yeah.

Everything that goes on between that doesn't matter. You're not going to anger the college. All right. They're they're accustomed to people, quote, negotiating. You know, I always say, be reasonable, be kind, be respectful. You know, this is not the time to hang up on, on the car dealer and expect to get a phone call back the next day.

Right?

Be kind. They're accustomed to this. Know your facts, know your data, know what you're willing to pay, know what other colleges are offering you. And recognize, you know, what you're going to get for that value.

And Bill Quain, on occasion I have families, parents, and students reach out to me. We do quick little Zoom sessions. And one of the things I share with them is that in this era, in that negotiation that Joe was just talking about, students have the power here. Am I correct in sharing that concept?

Yeah, I mean, they do, especially in this market, but not for every comp, you know, the big flagships and that kind of stuff. You know, you're— they still, Joe and I call them PowerPoints. You know, everybody thinks of PowerPoints as being a Microsoft product, but, you know, PowerPoints are the amount of power you have and you gotta find ways to grab one, you know, grab more PowerPoints and diminish the PowerPoints that the other, that you're on the other side of the negotiation has. But Gary, let me just— there's a saying that Joe and I really like, and it's where you do have some power. Think about this. Every American college that is in business today that has just one goal. They want to be the American college that is still in business tomorrow. You know, And that's their only goal. They have no other goals besides that monetarily. They just want to be there. They just want to stay open, you know. And so, and so listen, you realize that some of them, you know, want to stay open with someone like you.

And so, Joe Carabi, let's wrap this up. And Bill, I'm going to come back to you with the same question. So how can you beat this money trap? We've talked about ways during the course of the show today. Summarize quickly for us how students and their families can beat this money money trap where that offer or that offer letter is really a demand for payment?

Joe, first thing I would suggest is understand terminology. Know, know exactly what a grant is, know what a loan is, know when you have to pay a loan back, know what the interest rates are, you know, know the, know the, the basic facts of what an offer letter says. But then on top of that, it's important to know, you know, the little nuances of the game. You know, what does the first offer mean? And I'm gonna go back. The first offer is the worst offer. That you're not in a rush to respond.

All right?

If you sit on it for a couple of weeks, see what their reaction is. If they come back to you, that's a trend. That's a trend that maybe they're not meeting their goal. Maybe it's a trend that, you know what, we like you better than, you know, somebody else. The point very simply, you are on a list. I'll go back to my coaching days. You're on a list. If a college wants 3 linebackers and you're linebacker number 4, well, guess what? You're not going to get any offer if the first 3 guys sign. Yeah, right. As soon as one of those guys kick out, right, then you go to the coach and you say, hey, coach, you know, where am I on the list? Why? You just move up to number 3, right? Well, your response is, well, that's great. Now that I moved up to number 3, can I have some of his money? Since he's not going to use it. All right. So you've got to know where you are in the pecking order and the amount of interest the college, the amount of interest the college shows in you will determine how much money you get in the end.

So Bill Quain, one of the co-authors of Bankrupt, you take us home. How do students and their families beat this money trap?

I think number one, Gary, families have to be realistic. You know, before you even go into this, if you know what you're willing to pay out of pocket and how much you're willing to borrow, you know, you've got to have that number in your mind because if, for example, if you're willing to pay $10,000 and you're willing to borrow $10,000 a year, That's $20 grand. If your kid isn't a superstar, you know, don't apply to the college that's got an $80,000 price tag. You know, it's just, you know, as my cousin used to say, don't try to teach a pig to sing. It wastes time and annoys the pig. You know, start out realistically. And apply to places where you think, you know, you are a good match. If you want to have a couple of reach schools, that's fine. But know what you're willing to pay and that'll save you a lot of trouble in the end. You know, I want to end with just one thing. I told you about Sears and Rick's Appliances.

Yeah.

How Sears wouldn't deal with me, Rick's would. And I knew that going into it. 10 years later, Rick's was still in business.

Interesting. Well, we're going to call that a wrap for this episode show of Don't Let College Bankrupt You. And again, that U stands for university, not the Y-O-U. And we talked about money trap number 9 from the book Bankrupt You: Your Offer Letter Is Actually a Demand for Payment. Bill Quayn, Joe Kroby. Next week, let's go to money trap number 4. This is an ugly one. Student loans, the ultimate bankruptcy tool. And I know we'll have lots to talk about, lots to talk about next week. So, Joe Crabbe, always a pleasure. Bill, likewise. Let's do this again next week.

Gary, thank you.