Saving for college as an agency owner: How much it’ll cost, and where to start (Part 1 of 4)

How to pay for your kids to go to college, when you make a high income as an agency owner
Written by: Karl Sakas

Do you have or plan to have kids? Bad news: As an agency owner, you’ll likely pay full price for college, because you make too much for need-based aid. You might not feel it… but your business pass-through income makes you look “rich” to the financial aid office. At full price, four years today at a well-ranked state school will cost you $150K+ per child.

What can you do? Given that you’re [probably] not going to get need-based aid:

  • Saving for college requires a lot of cash—before, during, and potentially after. At full price, Harvard today costs $335,000. Even flagship state schools cost $160-180,000… or more if they don’t finish in four years. And college costs will keep growing.
  • The more you make now, the more you can afford to send your kids to top schools. Or at least, have the option.  And you’re less likely to compromise on other priorities, like retirement savings.
  • This is a complicated financial and emotional decision. You’ll need to make some tough choices. That might also include accepting that going straight to a 4-year school isn’t the right match for your child’s goals; companies are starting to agree.
  • The college process today is harder and more expensive than when we went. An agency owner observed that it’s more competitive than even five years ago, when their oldest started. And they likely wouldn’t get into their alma mater today.
  • As a business owner, you have some unique options. It’s not all downside; I’ll share many of those in this new series.

My advice? Approach this strategically, and enlist your child as a partner in the process. Get specific advice from a financial planner and other advisors, to help you make the most of a difficult situation. And recognize that “success” takes many forms.

Saving for college: 4-part series for agency owners

This is Part 1 in my four-part series on saving and paying for college, from February-April 2024:

If your kids are younger, you have more time. But if they’re older, you still have options. Subscribe to my newsletter to get future updates. If you’re outside the U.S., your situation is [relatively] better. And if you’re an agency employee, you might qualify for aid.

Why am I writing about this?

How is this relevant to my work as an agency advisor? When I help agency owners “Work Less, Earn More,” it’s toward your specific financial goals. You might want to retire early, travel more, buy that dream home… or send your kids to the best college you can afford.

Part of my work includes helping people consider new options—and helping them to take action.  When you make better decisions today, you’ll have better options in the future.

I bring a unique perspective to the topic, beyond my agency coaching work:

  • From the 1940s to the present, my family members and close friends have worked as professors, admissions officers, and higher ed administrators—from community colleges to private liberal arts colleges to Ivy League universities.
  • As a student, I worked in the Admissions office and with New Student Orientation. This gave me a behind-the-scenes look at how things at a competitive admissions school.
  • For almost 20 years, I’ve done guest lectures at schools like American, Duke, NC State, NYU, and UNC. I hear what students ask about their career plans… after their families have already spent five or six figures on tuition.
  • Most of my clients are actively saving for—and paying for—college, in an environment that sees them as “rich”… even if they don’t feel that way.

Starting point: What will you commit to save and pay?

In Part 2, I explore helping your child find the right path—including alternatives to immediately pursuing a four-year degree. But when your child is in elementary school—or younger, or they haven’t been born yet—consider focusing on saving money first.

That includes deciding how much you want to commit to saving for college. My assumption? As an agency owner, your kids likely won’t get any financial aid—because, as a business owner, you make (and have) too much money. That means you must make and save as much money as possible. But it also means you should be smart about spending that money—your child’s “ROI” on the education investment.

What might college cost in the future?

Try completing a few “Net Price Calculator” tools; schools are required to have them on their website. As many have noted, college costs have grown faster than inflation—but this will at least give you an idea of what they charge today.

Assumption: Let’s say you make $300K a year, your spouse makes $150K a year, your agency produces $500K a year in pass-through profits, your ownership stake has a[n illiquid] market value of $2 million, your brokerage and cash accounts total $600K, and you don’t have real estate beyond equity in your primary residence.

Based on those assumptions, here are four examples if you happen to live in California, a high-cost state:

  • Harvard: “Congrats”—if they get into Harvard (#3), the calculator says you’ll have to pay the full price of $83,750 a year. That’s $335K over four years. If you have two kids who [eventually] get into Harvard, you’ll pay $670K before inflation.
  • UC Berkeley: If we use the same financial assumptions, the calculator says your in-state Net Family Contribution (NFC) is nearly $400,000 (and they don’t even ask directly about business equity). They say the estimated net cost will be $46K a year—or a total of $184K over four years, before annual increases. They’re tied at #15 in the national rankings.
  • CSU East Bay: This state school is 20 miles from UC Berkeley. The income dropdown “stops” at $99K+ and doesn’t ask about assets. The calculator produces an in-state cost of $26K a year. That’s $104K over four years. They’re #280 in the national rankings.
  • Berkeley City College: Sticking in the Bay Area, BCC estimates a total of $20K over two years if they live at home… or $32K if they live independently. Of course, they’d likely pay more if they continue to a four-year degree. Like many states, California has programs to support transfers from community college, but it doesn’t guarantee a specific school.

Even when a calculator skips home equity or retirement accounts, you’re still [likely] in trouble. Why? Because the six or seven figures of pass-through profits from your LLC or S-corp mean the schools think you’re in the top 1-5% of households. And that means you’ll exceed need-based aid thresholds, even at the most-endowed schools.

College has always been an expensive moving target. Soon after I was born, my mom went to a parenting meetup in the early 1980s—where someone said, “You know, someday college will cost $20,000 a year!” Everyone else agreed that would “never” happen. Yet here we are. (Also, adjusted for general inflation—that ‘unthinkable’ $20K in 1982 is $60K+ in 2024… a price that plenty of schools charge today.)

In Part 2 and Part 3 of the series, I explore ways to get a stronger ROI from your college investment. But if your kids are currently in elementary school or younger, your primary priority is likely just “save [more] money.”

Should you save 100% of college costs in a 529 plan?

Saving is important, but you need to use the right “vehicles.” For many families, that’s a tax-advantaged 529 plan. Regarding the “Education Savings Plan” iteration, the SEC notes:

“Education savings plans let a saver open an investment account to save for the beneficiary’s future qualified higher education expenses. Qualified higher education expenses include tuition, mandatory fees and room and board. Withdrawals from education savings plan accounts can generally be used at any college or university, including sometimes at non-U.S. colleges and universities. Education savings plans can also be used to pay for other education-related expenses. These include up to $10,000 per year per beneficiary for tuition at any public, private, or religious elementary or secondary school; certain expenses required for participation in registered apprenticeship programs; and qualified education loan repayments up to $10,000 total per beneficiary.”

Stephen Boatman, our financial expert in Part 4, suggests saving 50-75% of projected college costs in a 529 account. He notes:

“Just because an account has a tax advantage doesn’t mean it’s the best option for you; sometimes letting the tax tail wag the investment dog can lead to lower net returns for a specific goal.”

You can use a 5-year election to “superfund” a 529 in a single year. But that doesn’t necessarily mean you should do so.

Why not 100%? Your child may not go to college. Your family’s priorities and circumstances might change. States have contribution caps. You might move to a new state, losing the state tax benefits. You might choose to pay for things like college consultants, which wouldn’t come from a tax-advantaged account.

Your 529 strategy also depends on how many kids you have. You might choose to save more for your first child, recognizing that you might rebalance any “overage” to cover your second child. And you can potentially use the 529 yourself, to cover a graduate degree or other qualified education expenses.

When we’re talking six figures, you really need to speak with a financial planner. But it helps to discuss your family’s priorities, before that first meeting. Speaking of that…

Focus on your family’s ROI

My recommendation? Focus on your family’s comprehensive ROI. In this context, your comprehensive Return on Investment is being able to afford your child’s best-fit school—without putting your retirement at risk—while optimizing the return you (and they) get from your investment.

  • Success: They pick their ideal school, have a great experience, graduate in four years (or less), and are ready to work (or in some cases, graduate school).
  • Not Success: They pick the wrong school and drop out, or pick the wrong major and have to start over, or transfer and lose credits, or stay in a major they hate, or don’t graduate ready to get a reasonable entry-level job.

Getting a high ROI doesn’t require going to Harvard—and in fact, Harvard may not be an excellent ROI for your family, even if your child gets in. In fact, not everyone should immediately pursue a four-year degree.

But a high ROI does require being strategic. This includes “fast-failing” your options, and considering hidden and lesser-known options—which I’ll discuss in the article series. This is also an opportunity to let your child do the legwork—on an age-appropriate basis, as you coach them—because being a self-starter is an indicator of their future success. After all, you can’t attend their future job interviews.

What about as they get older?

The more you make as an agency owner, the more options you’ll have. As an agency coach, I can help you earn more money—which enables you to save more before they start school, helps you take on fewer loans, and (if you choose) helps you support your child in paying off loans faster.

Later in the article series, I share time-targeted advice for when your kids are in middle school (Part 2) and high school (Part 3). In the meantime, pause to consider your mindset around this whole not-fun thing.

Mindset tips: What are you optimizing as you save for college?

1. How can you optimize for your family’s version of value? Value means different things for different people. As a baseline, I’d consider “value” to be the ROI on a particular school, relative to your child’s interest and abilities. And the ROI includes a mix of student experience, future earning potential, and overall life satisfaction.

2. Recognize that this is a financial AND emotional decision. Be careful about projecting your own views on their college experience. Your child comes from you, but they aren’t a direct extension of you. Don’t risk your retirement—or sign a personal guarantee on a private loan that you might not be able to afford—to send them to college. Also recognize that college today is very different from when you went.

3. Recognize that college is an unpredictable “credence” good. That is similar to following a CPA’s advice—you don’t know if you made the “right” choice until years later. Has the school gone up in the rankings? Did they get a good job right away? Is their alumni network helping them reach their goals? Was their college experience relevant to their future experience? Did they like going there?

4. Who’s in charge—you or your child? You have your own unique parenting style, including the degree to which your kids are involved in family decisions. One option is to say, “You can go anywhere you want, as long as it’s in-state or equivalent in price.” In contrast, an acquaintance’s parents took out a second mortgage to send her to the University of Pennsylvania. But I suspect she’d have been fine going in-state, at a fraction of the price… like her younger sister later did.

5. Find a balance on decisionmaking freedom. It’s unfortunate that we ask 17- or 18-year olds to make significant decisions that impact the next 20+ years. If your child isn’t legally an adult, you’re still in charge. But even if they’re 18, you’re [generally] still on the hook for their college expenses—even if under FERPA, the school won’t tell you about their performance.

6. Consider your flagship public school as a baseline. It’s true that well-endowed private schools offer major subsidies. But those are for low- and middle-income families, not agency owners. So, is your state’s best public school a good option? It might be the best ROI, all things considered—and recent Bloomberg research supports that. This might vary by state. And your child might be eligible for in-state tuition reciprocity.

7. Consider my “ideal vs. minimum acceptable vs. worst-case outcome” decisionmaking model. That is, what’s your (and their) ideal outcome? What’s the minimum acceptable outcome? What would be the worst-case? (For many, “worst-case” would be sending them to a school they dislike or can’t navigate, and they drop out; now, you’ve spent money with no degree.)

8. Talk to your financial planner and tax advisor. It’s possible you could make your family eligible for student aid—for instance, your spouse is preparing to retire, or you’ve wanted to downsize the agency (and might reduce the annual pass-through profits).

What if you aren’t making six figures today?

Ideally, you’re paying yourself $150-500K a year as an agency owner. (Here’s more about agency owner compensation, including nuances on the range.) But what if you’re not making that much now?

I’ve met some agency owners who pay themselves around $75K. This is often because their agency is in the early stages, and there’s not much revenue yet. But if you’ve been running your agency for more than a few years and still pay yourself less than six figures… it may be a sign of a larger disconnect.

If you’re intentionally (or inadvertently) underpaying yourself, consider reading the book Overcoming Underearning by Barbara Stanny. I read it several years ago, after my own coach recommended it… and immediately raised my W-2 salary.

You’ll need to decide what’s right for you. For instance, if your agency is highly profitable… those pass-through profits typically go into the financial aid formula, so it’s not “uncounted money.” Your financial planner can help you run the numbers.

What next? Choosing the right path, and optimizing the experience

Want custom 1:1 help making your agency more profitable so that you can save more for college? Consider doing a 4-6 week consulting engagement—in about a month, you’ll get Quick-Win advice plus longer-term tips.

If you haven’t already, talk to your financial planner for specific advice. If you don’t have a financial planner, it’s probably time to hire one.

Check out the rest of the series on paying for college:

Question: What’s your next step in saving for college?

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