First, create a college fund and make regular contributions. The size of the contributions and the kinds of investments you select depend on your goals, risk tolerance and the age of your children.
Children under 10: Consider a mix of 80 percent stocks and mutual funds and 20 percent in bond funds.
Children 11 to 14: You may want to invest 70 percent in stock funds and 30 percent in bond funds. Diversify your holdings to reduce risk.
Children 15 and older: Consider shifting some investments to less risky choices, such as certificates of deposit.
Student financial aid
Though educational costs are rising, the financing options available are numerous.
Federal Stafford Loans go to students with demonstrated need.
Federal parent loans for undergraduate students (PLUS) help parents cover the difference between the total cost of education and any financial aid awarded by the school.
Private and insured loans can supplement federal loans and scholarships.
Scholarships are gifts from organizations to students who demonstrate certain merits and/or financial need.
To apply for federal and many state aid programs, students must complete a Free Application for Federal Student Aid (FAFSA).
Today, the total cost for one year at a four-year public university averages about $10,450 (tuition, room and board, books and other expenses). At a four-year private school, the tab averages about $22,500. If costs rise 5 percent per year, parents of a newborn could be paying $25,700 to $55,320 yearly for their child's college degree. Given the expense, the smartest course is to use all the saving, financing and tax breaks available.
Several tax breaks also lower the cost of higher education.
Custodial account in your child's name.
Hope Scholarship tax credit.
Lifetime Learning tax credit. Student loan interest deduction.
Some states now sponsor qualified state tuition programs.