Bankrupt U: Money Trap 5: Taking a 'Bite' out of your wallet.

Welcome back to the show for another episode of Don't Let College Bankrupt You. And of course, that's the letter U, not the word you. My guests, as usual, are two college professors, Drs. Bill Quain and Joe Crabbe, who pay you back. And we'll talk about that during this series of shows. We'll talk about what colleges don't really want you to know and provide some guidance on how to keep your costs down and prepare for a more successful post-college career. Hi everybody, Gary Stocker. In this show, we are looking, taking a look at money trap number 5, taking a bite, and that's B-I-T-E, out of your wallet. Dr. Bill Coyne, always a pleasure to have you on the show. What do you mean taking a bite out of your wallet from the book Bankrupt You?

Well, Gary, this is just a part of the continuing saga of how colleges are in the business of getting your last dollar. They've got you for 4 to 6 years. They get you in there and they do a lot of tuition discounting to get you in there and so on and so forth. So now they have to maximize every time that there's a purchase made or an an opportunity for someone to spend money and the colleges take a big piece out of the top. So what this is, and this is a very common, I mean, this is a common experience to everyone who's ever gone to college, whether you live in the dorms or live off campus or you commute or whatever you are, you know, you've got food service on campus and that food service is skewed, the pricing on that and the, arrangements that the colleges make with the vendors who supply it are directed to maximize the amount of money they drain out of a student's wallets. And by doing that, then the parents' wallets. And that starts with overpriced meal plans. It continues through opportunistic sales and is capped off by Hardcore agreements they make with the vendors that demand the vendors, and this is absolute contractual language, that the vendors who sell this food maximize the profits that they make from the students. And if they don't maximize it, they lose their contract.

So Joe Carabi swipe, For those families just getting on the college scene for the first time, talk about swipes and some of the ways colleges aggressively use those to their benefit.

You know, what's interesting, Gary, is there's usually when you go to college, there are a variety of meal plans and, you know, they call them all different names and they're specifically designed for kids who might be there for or might live a distance from campus and maybe they need 21 meals a week. As opposed to somebody might go home from, go home on a weekend, they may only need 14 or 15. So most meal plans are designed so there'll be X amount of swipes within a given period of time. So let's just use what I think in the book we use it, was it the Fab 14? I think we call it in the book Fab 14, right? So the kid gets 14 swipes and each one of those swipes is worth a certain amount of money. So you go through the cafeteria line, and you pull out a hamburger or a soft drink or whatever it might be. And, you know, you go to the cash register, they add it up, and the swipe might be worth, let's say, $8. But you have to be very careful because if you exceed that $8 on what you want to eat that day, it'll go into— very often go into the next swipe. So you might have an allocation of breakfast, lunch, and dinner. But if you do, if you exceed the price of on one swipe, guess what? You're going to run short at the end of the week. So you still need to eat Thursday and Friday, but if you have no swipes left, you're going to be reaching into your pocket and, you know, you're going to be paying cash. So in addition to buying your meal plan, you're also going to be be putting out additional money because you've run out of swipes.

Interesting. And Bill Quayn, you talk in the book, uh, Bankrupt U, about non-roll-over in terms of these, these cafeteria credit cards or cafeteria cards. What's a non-roll-over and how is— how do colleges use that?

Well, let's go— and, and the, the— we do go quite deeply into this, uh, this Fab 14 from, uh, It's from a real university and some students actually did the investigating in this. It was pretty fantastic. But so this Fab 14, it's for 14 swipes a week. And so a lot of people know that at the end of the semester, if you haven't used up all your swipes, you lose 'em. Like they don't go from semester to semester. But a lot of these meal plans, like the Fab 14, they're weekly meal plans. So if you don't use all your 14 swipes in that one week, they don't roll over to the next week even though it's still part of the same semester. They're done.

And so, so the parents should ask about that policy, right? Do my meal plans roll over from week to week, Bill? Yeah.

Oh, yeah. Well, ask about it. But, but you've also got to, you know, you have to understand human behavior here, too. Joe was talking about the swipes being worth $8.16 at this particular college. And so I've seen this happen too, where somebody, well, at this particular college, water, a bottle of water was $2. So that means you have basically to go get a lunch, for example, you have $6.16 for the actual food because you're, you know, you're gonna take a bottle of water for $2. And then, so now suppose you go a little bit over. Now you, so suppose you spend actually $10. And so the two things could happen. One, you could just say to the college, okay, well, you know, use another swipe. And so then you're losing about $6 of that value. Or what happens all the time too is the kid will say to their friends or people or strangers standing around them, hey, do you need anything? Because I, you know, otherwise I'm going to lose this. So they They pack that, you know. And then this just happened to me recently. One of my student assistants that I have, I was going to buy them, but there was two of them, I was going to buy them breakfast in between classes. They were helping me organize classes and they said, "Oh no, don't bother because we have to use our swipes up." This is towards the end of the semester. So they were They were buying food for other people in the class and stuff like that to use it up. So it, it's, it, you know, you, you, you, the students, all they know is they've gotta spend this stuff. And that's, that, that's how, and that this is all the colleges know this. And so they're gonna get a lot of breakage. We call it breakage. I listen, I, you know, I went to the hotel school at Cornell, so I actually, you know, I'm a former executive chef. I owned my own restaurant. I was a food and beverage director of a ski area and that kind of stuff. But I also worked in college food service, you know? So I know about this kind of stuff and it's pretty cutthroat.

[Speaker] So Joe, there's many of the chapters and sections of the book, you talk about the money and we do some math, that kind of the term that you use. And there's that same thing on page 67 of the book, "Bankrupt You." And you do, and you say, "Let's do some math." And you do, and you talk about colleges essentially earning some free money. And please talk about that. But the point I want to make also is, well, colleges are— they don't call themselves for-profit, but they are, even though they're legally nonprofit organizations. Aren't they entitled to make money as much as possible as a business, Joe?

Well, they are a business. First of all, let me answer that second part of that question first. Look, they're a business. I mean, I don't have any problem with that. But I think there's a factor here that needs to be considered, and that's a factor of honesty. All right, look, you want to make money. I mean, you got to tell people that you're making money on them, and maybe the consumer would then determine, you know, how they want to proceed. But no, I don't have any problem with people making money. I honestly don't. I mean, they are a business. You know, when you talk about doing the math, and I think what you're referring to there is that in the book we make— well, actually, once again, we quoted a student, uh, two students— one of the two students, Bill, did that, or did that research, right?

Yeah, they published in the school paper.

Yeah, yeah, they published it in the school paper. And so, and, and here's what they found out. What they found out was, you know, you're paying X amount of money for a meal plan throughout a semester, and when you actually break it down per swipe, you know, the average student was paying I think it was $460 or something like that, right? Yeah, $416 more than the actual swipes were worth. Now, you, you know, you take a school with 5,000 kids in it, all right, and, and the college is making— or the, you know, the college and the food, uh, service company making over $2 million. I mean, come on, that's, that's, that's There's something wrong with that. Okay, that, that's different than being a business. Uh, I'm gonna— I'll run short of saying the word dishonest, but it sure doesn't sound very honest to me.

Yeah, yeah.

Well, and it's a monopoly, you know. I mean, the, the part of the contract with these vendors is that the school gives the vendors You know, so whatever the food service company is, because these colleges, I think a lot of parents think that these colleges do this food service in-house and some of them do. Like for example, everybody's kid came from a high school where the food service is in the school, right? And it's cafeteria employees. It's generally, Joe, you know more about that as a, former principal, those cafeteria school, high school cafeterias are not hiring outside vendors, are they?

Uh, very, very well, maybe more so now than they were years ago, but Bill, nevertheless, usually they're, uh, there are opportunities for local community people to actually have a job. Um, and, you know, and the reality is, you know, that's, that's a interesting topic because You know, when you walk into a typical high school, most of the people who work there know the kids, and it's more of a community type of a thing. Look, as a former high school principal, I can tell you we weren't looking to make money out of the cafeteria, you know, and we actually looked to price items that were fair for kids and fair for families. All right. But then again, we weren't a business. All right.

What you're saying, though, and that's the point, Joe, that's, this is the big difference there. Yep. And so, so parents and students are coming from that sort of environment, right? Where they, where they've got this trusting relationship, that the school is doing their best to provide a nourishing meal. And then you've got all like the Head Start programs and that kind of stuff, you know, that are locked in with that. But that's not the way it is at college.

No, no.

This is a major revenue source for the colleges. And so, you know, you go back to that example, the math we were talking about there, that Fab 14 meal plan actually sold for, I know it was $2,200 and—

Yeah, I think it was close to $2,300, something in that area.

Yeah. And when you, the number of swipes you actually got up, got in there. When you divided $8.16 by the number of swipes you actually got, those 14, you found out that there was a $400 premium in there, $430 premium, something like that. And that's thin air. Now, I'd love to make money on thin air. I have no problem with somebody putting together food, buying the food, paying for the labor, that kind of stuff. But then you got a captive audience and you put up $400 per student. And that was for the Fab 14. That wasn't, that wasn't as big an add-on as for some of the more expensive plans there. So, you know, so, so what we tell parents is, you know, ask questions and do the math, you know, and then what I would suggest, and I know Joe suggested the same thing, you buy the least expensive meal plan you can get, you know, just get the bare bones of whatever you can. And then every school has what they call flex dollars, which is money you can pay money and it's dollar for dollar. So it goes onto your swipe card dollar for dollar. There's none of this add-on stuff, you know, there's none of this, limit to $8.13 or 16 cents a swipe, whatever this particular school was. This is dollar for dollar. You, you buy $300 worth of flex dollars, you got $300 on your swipe card. And, and you, you buy the least expensive meal plan you can. You, you teach your kid, you make this a lesson for your kid about budgeting. It's a great lesson to learn. And then whatever money they have to pay other than the swipes, they pay in these flex dollars. And that saves you dollars. Plus, you know, the flex dollars, when you run out of flex dollars and the kid asks you for more, it's a great chance to say, well, what were you eating? Let's go, you know, let's go over that. And so, you know, get the flex dollars and minimize your exposure to the school with these plans.

Gary, can I jump? I'm sorry, Gary, can I just jump in really quick?

Please.

Can I just please? You know, over the years, you know, Bill has taught me quite a bit about this segment of the business. And, you know, let's look at Bill's credentials. All right? You know, Bill has— yes, he's my friend and colleague, but he has outstanding credentials in this area. This is not just somebody off the street, you know, giving their opinion about something. His, his knowledge of food service and food management and so on is extraordinary. So, you know, the information that you're getting here from Bill is, is, is not just off the street. I mean, this, this guy knows what he's talking about.

Well, it's all three of us, Joe, because your experience as a principal, that kind of stuff. And then Gary with College Viability. Gary, you're looking at the books on this with colleges. And I've watched you and Matt on that other show you have. Where you're saying, okay, let's look at how much this college made on their food service. It's amazing. These small colleges are putting, you know, a million dollars, a couple million dollars into their pockets. I mean, not in their pocket, but it goes into their operating expenses, stuff like that. But that goes out and back at the fact that goes out to faculty in salaries. And by the way, Thank you, everybody, for Joe and I since we're back in the game.

The thank you is implied though, right?

It's not— So this is a crazy thing and it just— Well, the fact that these food service companies in the contract are told you have to maximize the profits. Sharing that you do with us. And don't forget, these are exclusive. So now almost every college does meetings and that kind of stuff for people outside the, you know, outside the college itself. Or they— people come in and they, you know, they rent space and they have their meetings and they get it catered and that kind of stuff. But even like all the student clubs do catering. You have a stadium, you have a stadium, this same food service company has the contract for the stadium. So this is huge, huge business for the food service companies. And so imagine the pressure on them to, because if the school says, you're the general manager, let's say of XYZ College, we call it XYZ College in the book, and your job is to make sure to keep that contract for one thing, because it's making a lot of money for the food service vendor. You know, and the college comes to you and says, I don't think we're making as much as we could. We might look at some other food service company. Yeah, you're desperate now. So now you're coming up with all kinds of plans to maximize this. And let's not even get into the co-branding that goes on now in colleges where Yeah, you might have a Starbucks there, you might have a Chick-fil-A, but those are all subcontracted to these food service companies and all of them are pumping back the big bucks to the colleges. And the colleges have these things strategically set up at traffic points where students can grab these fancy coffees and all that kind of stuff. It's just, I mean, it makes you proud. To have, you know, I teach this, I teach this stuff in my classes. It makes me proud that the lessons are being learned so well.

And, and so I want to talk to you, I'll read something from the book. This is on page 68 of the book Bankrupt You, and the subheading for the section, It All Adds Up to a Possible Conflict of Interest. All right, so here's from a quote from the book. Is it, is the priority, is a priority excellent nutrition for the students? No, you say. Is the priority keeping food costs down for those students? No, you say emphatically. The priority becomes the amount of profit the college can make, not only from the entire campus but from each student on that campus. And you go on to ask the rhetorical question: is this possibly a conflict of interest? Joe Crabbe?

Yeah, that's pretty, um, yeah, I guess when you really phrase it that way, it's, uh Pretty nasty. Uh, look, colleges are a business, and as we've said many, many times, you want to be the college that's in business tomorrow. You're going to look to try to garner revenue however you can. Is it a conflict of interest? My perspective, yes. But I also realize the realities of the world. This is why we advocate parents to ask the the right questions. Yeah. All righty. It's one thing for a college to make money. It's one thing for a college to stay in business. It's also a parent's right to understand where, where his or her money is going. So, um, yeah, conflict of interest, yes, I, I honestly believe it is. But I also believe that, that there's nothing illegal about it. All righty. Uh, And it's done all over the place. I mean, it's done all the time. You know, is there a conflict of interest if you go to your local high school stadium and see a sign on the scoreboard for Coca-Cola? All right, well, here's what people don't know, that Coca-Cola is putting that sign up there, and here's what they said to the school district: you can only use our our machines in all of your schools. You can't use Pepsi, you can't use Canada, you know, those types of things. All right. And here's the other thing that you don't know. For every case of soda that you buy from Coke, you're going to get a kickback of maybe a dollar. Right? Oh, you think that scoreboard got built for nothing? I mean, you know, this happens all the time. I mean, this is so conflict of interest. Yes. Done all the time? Yes. But it doesn't mean a parent shouldn't know about it.

So I ask you both the same question, and Joe will go right back to you for the first one. And it talks— we did this before we started recording this show today, guys. And certainly colleges are welcome to drive as much revenue as possible. They're a business, but they don't readily admit to being a business. They try and claim this platform of I'm going to use the word superiority. I'm not that sure that's the best choice of words, but Joe, should they not be more upfront that they're trying to drive revenue? And there's nothing wrong with that, but they're trying to portray themselves as nonprofits. And in reality, that's not the case.

No, it's not the case because, well, the analogy Bill and I often use is, you know, if you were to walk around a college campus and ask the people who actually work there, you know, would they work for nothing? And obviously the answer is no. Colleges proclaim that they are nonprofit, but everybody who works at that college is for-profit. Alrighty, so it's common knowledge that you have to pay your bills. There's a bottom line once again, Gary, it always comes down to a bottom line. You have to be an informed consumer. Should colleges make money? Well, if you're a nonprofit, the answer is no. All righty, do you maximize your return so you can stay in business? Yes, but that's what, that's part of the, that's part of the responsibility of a parent. When you look at colleges with your son or daughter, you need to know where the money's going, right? They, they have their interest in mind, all righty, and it's gonna, it's gonna supersede their interest in your son or daughter. Nothing malicious. It's just the way it is. We need to stay in business.

And then, Bill, same question, but I'm going to add kind of a precursor to this. And on Tuesday, yesterday I guess it was, we did the weekly college financial health show, and I'm not going to name the college, but we had a college on there who made a profit. Now again, nonprofit organizations, they don't call it profit. That's what it is. They call it net income margin, Bill. And this college's net income margin was ridiculously strong, really good. And trust me, that's a rarity in higher education these days. Many colleges operate with no profit, net income is less than zero. But this college had a net income margin that was above 5% for the last 8 years, which is really high. Talk about that in the context of colleges being, again, the theme is being upfront that they're trying to make money just like everybody else?

Well, I think it's time for colleges to start preaching what they practice. And this, this would— I mean, this would be a game changer if colleges were to teach their students the things that they do to make money that would benefit those students for a lifetime, and that would really spread out. I will say this from my college where I work, I've been talking to them about releasing some financial information from some of the outlets that they have, food service outlets. Now I teach hospitality management, so I teach a class in food and beverage management. And so we're looking at, and having the books opened up from at least one of the outlets every week so that my students, for the 4 years that they're in school, that they'll every week will get a financial report on one of these. And I don't know why colleges are so hesitant. Well, I know why they are because they're stuck in an ancient model of teaching here. But so much of the this ROI on college would be changed with some transparency for the students to say, hey, listen, here's how you get people to give you their money. You know, and wouldn't that be nice for students to learn that for a lifetime there? So that would completely eliminate any hint of a conflict of interest and turning it into a teaching moment.

And Joe Carabi, take us home. How do you beat this money trap? How do you beat this trap where colleges have these swipe cards, whatever you want to call them, and teach your child some business lessons, some life lessons, and still get that education that they want?

It's a difficult task. I'm going to lay that out there for you right now, Gary. Not going to in any way sugarcoat this. This is a tough one. This is a tough one to beat. Your kid's got to eat.

Alrighty.

Number one thing I would suggest is do the math. All right. And actually see what your money is yielding. The very simple one about, you know, just dividing the number of meals into, you know, into the cost of the plan. It's a matter of doing the math. It's a matter of sitting down with your son or daughter, and it is a great opportunity to, to understand money, to teach them about money, uh, that, you know, that swipe has limits to it. Uh, Bill's suggestion about Flex Dollars is a great one. Uh, there are things you can do, but I'm not gonna— I'm not gonna sugarcoat it. It's tough. Your kid's away from home. Your kid's got to eat. Yeah. And, and, and you want your kid to eat. Let's face it, you know, one of the things that parents worry about is, are you eating? Are you making friends? I mean, you know, really, you know, it's like, how are you doing academically? Sometimes comes down the bottom of the list. But, you know, they want to know, are you eating?

Good point.

Or, you know, and, and see, your kid's going to eat, so do the math. Um, I'm not even sure there's much you can do about it. I mean, you might see that you're paying a $400 premium per semester. I'm not sure what you can do, but I will tell you this, that if enough people complain, the university will do something.

And Gary, if I could add something— you've heard of the Freshman 15?

Yeah, yeah, yeah.

Well, think of it as the Freshman 1,500. That's, that's the— that's the probably the premium you're paying every year, uh, there for, for, for things you just didn't even know. By the time you get the bookstore and everything else, you know, computer fees all that kind of stuff. It's probably the freshman, sophomore, junior, and senior $1,500. So that's an extra $6,000 that's in there. And, you know, as Joe said, I'm not sure you can get around it, but I think if you're aware of it, it can be a good lesson.

[Speaker:ROBERT_LEONARD] So the topic today has been money trap number 5 from the book, Bankrupt Jude, Drs. Bill Quayle and Joe Corabi. Have shared again with us some, some perspective on what that means and taking a bite out of your wallet. And that's B-I-T-E. And they share some guidance and tips on that. Joe, Bill, always a pleasure to chat. We'll be back soon with another episode of Bankrupt You.