Behind on College Savings? Before You Panic, Do This

Some people start saving for college from the moment their children are born. And while that might seem like an overly early start, it's actually not when you consider how much college tuition costs today.

U.S. News & World Report says the average cost of tuition and fees at private colleges is $42,162 based on the 2023-2024 academic year. And to be clear, that's one year of tuition and fees.

For public out-of-state schools, a year of tuition and fees costs $23,630 on average. And at public in-state colleges, you're looking at $10,662. 

If your kids are already in high school and you've saved pretty much nothing for college, or you've only saved a few thousand dollars, you may be starting to panic. Before you do, though, it could pay to have a talk with your kids.

Set expectations and see what your kids' plans entail

You might assume that if you're unable to present your kids with a giant pile of cash to cover college tuition in a few years, you'll be letting them down. But before you make that assumption, talk to them about their higher education plans.

You may find out that one of your children doesn't want to attend college, but rather, has the goal of starting a small business. So let's say you only have $7,000 by the time that child graduates high school in a savings or brokerage account for higher education. That $7,000 might be enough to help your child get their venture off the ground and lead to a successful career.

Meanwhile, you may have a second child who wants to get a degree but is perfectly OK with doing their first couple of years at a community college before transferring to an in-state four-year school. That could lower your costs tremendously.

Even if you have multiple children who want to go to college right after high school, it pays to be honest about what you can afford. If you don't have a lot of savings, and you come clean about that early on, your children can approach the application process more efficiently. They may opt to focus on colleges that are known to offer more financial aid, or they might limit their search to in-state schools only.

Also, knowing your college savings are limited might take some of the pressure off of your kids to try to get into top schools that are notoriously expensive. If you know those schools are financially out of reach, there's no sense in your kids stressing themselves out to get in.

Figure out how to focus your savings efforts from here on out

If you're behind on college savings, rest assured that a lot of people are likely in your boat. So rather than bemoan being behind, try to look forward and do your best to save as much as you can for college from this point onward.

But also, be smart with that money. You may be inclined to invest it in stocks to try to grow it into a larger sum quickly. But it's actually not a good idea to put money you expect to need within a few years into stocks. The market is just too volatile for that, and you don't want to risk seeing your portfolio crash at a time when you need your money to pay tuition bills.

If you have less than five years until your kids go to college, you may want to stick to cash and bonds. In fact, now could be a good time to open a longer-term CD (like a 5-year CD), since rates are high. Plus, your money is protected as long as you're banking at an FDIC-insured institution.

Being behind on college savings is an understandable scenario to land in, and it happens to a lot of people. But before you panic, talk to your kids. That way, you can at least all get on the same page and map out a plan together.