Here's What Parents Save Each Year for Their Kids' College -- and Why It May Not Be Enough

If the idea of paying to send your kids to college is enough to make you break out in a sweat, you're probably not alone. The cost of higher education has downright soared in recent years, making it increasingly difficult for parents to pay for it in full.

In fact, U.S. News & World Report says that on average, tuition and fees at private universities for the 2022-2023 academic year came to $39,723. And while you could easily not go the private route, even state schools have gotten expensive, coming in at $22,953 for annual tuition and fees for out-of-staters on average, and $10,423 for in-state residents.

Meanwhile, parents saved an average of $5,507 last year for their kids' college, according to the Education Data Initiative. And that's certainly a respectable sum. But whether it's enough to actually cover the cost of a complete college degree is a different story.

It's a matter of time and what you do with your college savings

It's hard to begin saving for college when your kids are super young and you're saddled with childcare expenses. But if you don't start saving for college when they're pretty much babies, then it's probably going to take a lot more than $5,507 a year to make a dent in the cost of their higher education given the numbers above.

But let's say you do manage to give yourself an 18-year savings window to build up a college fund. You'll still want to make sure you're investing your college money rather than keeping it in a regular savings account. If you don't, you might end up short.

Let's say you manage to save $5,507 a year for college over 18 years at an average annual return of 4%, which is what a number of high-yield savings accounts are paying now. That's going to leave you with about $141,000. But if your child opts for a private college, based on this past year's numbers, it's going to cost about $159,000 -- and that's just tuition and fees. You might also have to pay for a dorm room, books, and supplies if you don't want your child to have to borrow to cover those costs.

Plus, what if you have more than one child, and the $5,507 you're saving each year has to be split between a few kids? Granted, in that scenario, you'd probably have more than an 18-year window to save (unless you have twins or triplets). The point, however, is that investing your college savings, whether in a taxable brokerage account, Roth IRA, or 529 plan, is probably a better bet.

The stock market has, over the past 50 years, rewarded investors with an average annual 10% return before inflation, as measured by the S&P 500. So if you save $5,507 a year over 18 years, only with an average yearly 10% return on your money instead of 4%, you'll end up with about $251,000. And that could easily put a single child through college, and potentially cover the bill for two children or more, depending on their schools of choice.

Ramp up if you're starting later

You might manage to amass quite a lot of college savings if you sock away $5,507 a year for many years and invest your money. But if you already have children in high school, for example, and you're only now starting to save, then you may need to part with more money on a yearly basis to be in a position to cover a lot of their college tuition.

That said, if you know you're getting a later start on the college savings front, you may need to reset expectations with your kids. Explain what you're capable of contributing toward their education and encourage them to choose a public college over a private one. Even in that scenario, your kids might end up having to borrow. But thankfully, there are ways for them to do so in a relatively affordable manner.