College and Earning to Give

In the effec­tive al­tru­ism move­ment it’s com­mon to break things down into three gen­eral ap­proaches:

  • earn­ing to give: earn­ing more so you can donate more, us­ing this money to fund things you think are re­ally im­por­tant.

  • di­rect work: spend­ing your work­ing time do­ing some­thing use­ful, not me­di­ated by money.

  • build­ing ca­reer cap­i­tal: do­ing some­thing that isn’t valuable for it­self, doesn’t make you much money that you can donate, but is fo­cused on prepar­ing you for fu­ture di­rect work or earn­ing to give.

For ex­am­ple, my work­ing as a pro­gram­mer so I can donate money is earn­ing to give, while when I was briefly work­ing full time as an in­de­pen­dent re­searcher that was di­rect work. My time in school was pri­mar­ily about build­ing ca­reer cap­i­tal, though I wasn’t think­ing about things in an EA way at that point.

I’ve been think­ing about how these choices in­ter­act with pay­ing for col­lege for your kids, and es­pe­cially the fi­nan­cial aid sys­tem.

Fancy col­leges use a very pow­er­ful sys­tem of price dis­crim­i­na­tion. They set their price very high, but don’t ex­pect most peo­ple to pay the sticker price. In­stead they have a fi­nan­cial aid sys­tem where they col­lect as much in­for­ma­tion as pos­si­ble about each fam­ily’s fi­nan­cial situ­a­tion, es­ti­mate the most the fam­ily would be able to pay, and then charge that. About twenty top schools are rich enough to charge ex­actly what they think you can af­ford (meet 100% of demon­strated fi­nan­cial need with­out loans), while about an­other ~10 will do this for fam­i­lies with in­come un­der a thresh­old, and an­other ~45 will in­clude stu­dent loans in the price (meet 100% of demon­strated need, with loans). Here’s a list of these schools.

If you don’t have so much in­come or as­sets that the col­lege will ex­pect you to pay the full amount, you can think of these as a 100% tax on your post-tax in­come: earn­ing $1 more means the col­lege will charge $1 more.

This pushes very hard in fa­vor of di­rect work over earn­ing to give. If I earn $200k af­ter tax and donate $150k, the school still sees that $150k as money I could pay them. Even though I only took the high earn­ing job so I could give the money away, that’s not how the school would see it. On the other hand, if I took a di­rect work job pay­ing $50k af­ter tax I would be in a similar place in terms of effec­tive in­come, but the school doesn’t make a claim on the in­come I’m pass­ing up.

Be­fore we can get into figur­ing out ap­proaches, though, how much is col­lege likely to cost? My kids are two and four, so let’s say the mid 2030s? Let’s start con­crete and look at how prices have been chang­ing at the col­lege I went to (Swarth­more), ad­justed for in­fla­tion:


source, source, scratch work

Look­ing at that chart, the main thing that comes to mind is to won­der what changed in the early 1980s? Why did costs sud­denly move from in­creas­ing at about the same rate as in­fla­tion to in­creas­ing so much faster? I’ve read some things sug­gest­ing this is col­leges hiring many more ad­minis­tra­tors, but I’d be re­ally cu­ri­ous to read more if peo­ple know what’s hap­pen­ing here? I’d also love to see two similar charts, one show­ing the amount stu­dents ac­tu­ally pay, af­ter fi­nan­cial aid, and the other show­ing col­lege ex­penses per-cap­ita, since fundrais­ing is also a large source of col­lege in­come.

While un­der­stand­ing the growth in costs more would be use­ful in try­ing to pre­dict it, the slope is re­mark­ably steady go­ing back to that bend in the early 80s. Aver­ag­ing over the 1986-2018 pe­riod, costs have been go­ing up $1,009 per year in 2018 dol­lars. Naively ex­trap­o­lat­ing you get:

This would give es­ti­mates, still in 2018 dol­lars, of $82k for when a now-four year old starts col­lege, and $87k when a now-two year old finishes.

This was much less of an in­crease than I was ex­pect­ing to find! If you look for a cost of col­lege graph you of­ten find things like:


source

This is graph­ing the BLS Col­lege Tuition and Fees con­sumer price in­dex, which tries to track the cost of col­lege. This shows col­lege cost ris­ing much faster than above, be­cause it isn’t ad­justed for over­all in­fla­tion. What if we ad­just this for in­fla­tion, the same way we would con­vert past dol­lars to pre­sent dol­lars?

This is still a faster in­crease than we saw with Swarth­more. Let’s put them side-by-side:

If Swarth­more’s costs had grown at that rate it would have moved from $16k in 1986 ($36k in 2018 dol­lars) to $101k in to­day, in­stead of the $68k we ac­tu­ally see. That’s 2.8x in­stead of 1.9x.

I think what’s go­ing on is that Swarth­more was already a very ex­pen­sive place, while most of the schools in the CPI started off much cheaper. While I haven’t looked at num­bers for the other schools at the top of the price range, I’m pretty sure I’d see the same thing: large cost in­creases, but not as fast as the col­lege CPI.

Are there other fac­tors af­fect­ing cost? For the most ex­pen­sive schools, with their fi­nan­cial aid-as­sisted price dis­crim­i­na­tion I think there’s not much of a down­side to con­tin­u­ing to in­crease the offi­cial price. A larger and larger frac­tion of peo­ple will be on fi­nan­cial aid but, since these schools are care­ful not to charge more than the fam­i­lies can pay, higher prices prob­a­bly don’t end up turn­ing peo­ple away. I’m not sure what keeps the col­leges from rais­ing their prices even faster, but my guess is that they want to avoid look­ing greedy. This makes me think $80-90k/​year in 2018 dol­lars is a pretty good guess for schools at the up­per end of the price range in the 2030s.

Now, there are lots of other ways things could change by the 2030s. Col­lege could lose its rele­vance as top em­ploy­ers start re­cruit­ing promis­ing high school stu­dents. The idea that ev­ery­one should go to col­lege could fade for some other rea­son. Col­leges could be “dis­rupted” by some­thing else that can fill a similar role in a much cheaper way. Or col­leges could be­come even more cen­tral, even more com­pet­i­tive, even more able to use high sticker prices as ev­i­dence of the value they provide, fi­nan­cial aid loses its re­main­ing stigma, and sticker prices could rise faster. Or there could be some kind of col­lapse or dis­rup­tion, where this all looks very differ­ent. I’m go­ing to try look­ing ahead as­sum­ing stuff doesn’t change, but also avoid giv­ing recom­men­da­tions too tied to the cur­rent way things work.

(It’s also pos­si­ble that our kids won’t be strong aca­dem­i­cally and so not a good fit for col­lege, es­pe­cially the top col­leges I’m talk­ing about here. We’ll know much more about what they’re like closer to the time, and can ad­just then.)

First, whether this is worth car­ing about at all de­pends on how much money you’re mak­ing. If your in­come is $1M/​year, you prob­a­bly do well to con­tinue earn­ing to give even if col­leges are tak­ing $85k. On the other hand, if I’m mak­ing closer to $300k then af­ter taxes and col­lege there would be very lit­tle left to donate. It’s very hard to pre­dict how the mar­ket for soft­ware en­g­ineers will look that far out, and I think there’s a de­cent chance my in­come will fall sub­stan­tially, but I’ll keep go­ing as­sum­ing it stays in this range.

So even if I’m a much bet­ter fit for earn­ing to give than di­rect work, I might want to move out of earn­ing to give when my kids are get­ting close to start­ing col­lege. Be­cause col­leges look at ~2 past years in­come when mak­ing cur­rent aid de­ter­mi­na­tions, this tran­si­tion would need to hap­pen a few years early. Closer to the time I’d want to look into aid de­ter­mi­na­tions again, to make sure I didn’t stick with earn­ing to give too long.

I’m guess­ing my two kids will be in col­lege for a com­bined six year span, so this would mean at least eight years away from earn­ing to give. One con­sid­er­a­tion is whether I’d be able to move back into this af­ter be­ing away for so long. It might be worth hav­ing six years of not be­ing able to donate 50% in ex­change for the years af­ter be­ing much more pro­duc­tive. I think this de­pends a lot on what I do in the in­ter­ven­ing time. For ex­am­ple, if my di­rect work were in tech of some kind I’d still be get­ting rele­vant prac­tice, whereas if I did this as more of a ca­reer change it would make more sense if it wasn’t some­thing I would be switch­ing back from.

Another pos­si­bil­ity is that I could con­tinue earn­ing to give, and our kids could go to a cheaper school. I don’t know what that’s likely to look like in the 2030s, but if I were de­cid­ing this to­day my guess is that it’s worth it for our kids long term to go to the best school they can get into. It doesn’t take very many years of higher in­come alone to make up the differ­ence.

I also looked some into the best ways for par­ents to save money if their kids would be get­ting fi­nan­cial aid. While I pre­vi­ously sug­gested stu­dents get mar­ried so their par­ents’ fi­nances wouldn’t be con­sid­ered, schools that do this kind of price dis­crim­i­na­tion re­quest the CSS Pro­file in ad­di­tion to the FAFSA, which does in­clude fi­nances for par­ents of mar­ried stu­dents. De­tails of how this works are likely to change, but it looks like re­tire­ment ac­counts are pretty much the only place you can re­li­ably put money and not be ex­pected to use it to pay for your kids’ col­lege. Re­tire­ment early with­drawal is a 10% penalty, and schools typ­i­cally take 5% of as­sets per year, so it makes sense to put money into re­tire­ment ac­counts even if you think you might need it be­fore you re­tire.

It looks like sav­ing money for col­lege in a 529 plan, es­pe­cially one in the stu­dent’s name, is not a good idea. The more you save the less fi­nan­cial aid you get, though not with at high a rate as with in­come: the CSS Pro­file cur­rently figures 5% (per year) for parental as­sets and 25% for stu­dent as­sets.

Col­lege is still a long way off, with my kids yet to start kinder­garten, so it looks like the only two take-aways right now are that it’s not use­ful to safe ex­plic­itly for col­lege and that re­tire­ment sav­ings ac­counts are good. Look for an up­date some time around 2028.

cross-posted from jefftk.com