Planning For College

In a tight economy, planning for college can be difficult. When more parents than ever before are consumed with concerns about debt reduction, saving for college seems like a pipe dream. In reality, you can save for college, even when you don't have a lot of time to amass cash.

If your children are young, saving for college can be as simple as opening a 529 plan account or similar investment tool. Most states have individual plans, but you can participate in any plan you like. There may be some tax benefits to participating in your own plan, however, so don't overlook those.

If you only have a few years left before son or daughter goes off to college, now is the time to make plans that involve less saving and more cost containment. The single biggest way to save on college expenses is to choose a school whose tuition is manageable. That may mean choosing an in-state public university or living at home and attending a local college. Super savers have realized substantial savings by taking the first two years of college coursework at a community college and then transferring to the school of choice to complete a degree. It's not a bad strategy, if you can work with a college counselor to make sure that your community college credits will transfer to your school of choice. Even if you take this route for just one year, you'll save big in the long run.

Talk to your son or daughter about the majors they're interested in and have them do some research on what they can expect to make if they work in that field. Remember, starting salaries are often much lower than median salaries, so don't let them delude themselves about how much they'll be making out of the gate.

If you're on the doorstep of college and you haven't saved, your best bet is to have your child secure loans through the federal government. Think twice about raiding your 401(k) or taking a home equity loan to pay college costs. Also, think carefully about taking loans to help Junior pay his college bills. You have a much shorter payback horizon than your child does, so the bulk of educational loans should be taken out by the ultimate beneficiary of the diploma.