Thinking About College Funding

by jefftkjefftk2 min read9th Sep 2021No comments

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ParentingEducationPractical
Personal Blog

A few years ago I wrote about how, if you're trying to decide between direct work and earning to give, the college price discrimination system of financial aid can push towards direct work. It's a bit of a niche thing, since it really only applies if:

  • Your children are likely enough to be admitted to the kind of institution that commits to meeting 100% of demonstrated financial need, or otherwise has a similar "100% effective tax rate".

  • You're not be very interested in saving money for your own future use. The CSS Profile suggesting 5%/y for parental assets means that with three kids at 4y each you might be asked for 60% of assets.

  • Your earnings need to be low enough just before and during college, either because your career has never been highly lucrative or because you are willing to change your line of work for that time period.

Now that we have a third child I'm thinking about this again, and in our particular case I now think we are pretty unlikely to take the direct-work-minimize-income approach:

  • Nora is unlikely to be in college at the same time as her older siblings, since she's five years younger. This would mean a much longer period of applying that approach, ~10y instead of ~5y.

  • The CSS Profile is very comprehensive in identifying assets, and likely to continue to get more so. If we chose that approach the value of our house and retirement assets would be unusually high for our income. This could raise flags, and many places do consider them to some extent.

  • I've been lucky in how well compensated I am, and if this continues then paying sticker prices for college would not impact our ability to donate.

  • I continue to enjoy working as a programmer, and think it's pretty likely I'll want to be doing something similar in ten years.

This also means that a 529 college savings plan probably makes sense for us. This is an investment option where gains are not taxed as long as funds are limited to educational expenses. It's a lower priority than donations or retirement savings, but if we have additional money left over the lack of capital gains tax is nice.

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