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If you're good at planning ahead, you may have thought about it before your child was even born, perhaps while you were shopping for a bassinet and teddy bears. At any rate, you probably started thinking about it when your child was very young. After all, it's one of the major responsibilities you face as a parent: your child's college education.

Personal growth and expanded horizons are reason enough to send a child to college, but there are more practical considerations, too. College graduates have more jobs to choose from, and they generally make more money than people who have a high school education. That makes a college education very important for your child's future.

Start Early, Early, Early

As a parent with an eye to the future you should start early to save for your child's college education. College costs have risen consistently for the past 10 years, and there's little reason to think this trend will reverse itself. Most cost estimates predict annual increases of 5%. What's more, many people take more than four years to finish college and some go on to postgraduate studies, so you may need to save even more.

To see just how expensive college is likely to become, take a look at the chart below.

Estimated Cost of One Year of College Education, Including Room and Board
School Year	Public - 4 Year	Private - 4 Year
1998-1999	10,458	22,533
1999-2000	10,981	23,660
2000-2001	11,530	24,843
2001-2002	12,107	26,085
2002-2003	12,712	27,389
2003-2004	13,348	28,758
2004-2005	14,015	30,196
2005-2006	14,716	31,706
2006-2007	15,452	33,291
2007-2008	16,225	34,956
2008-2009	17,036	36,704
2009-2010	17,888	38,539
2010-2011	18,782	40,466
2011-2012	19,721	42,489
2012-2013	20,707	44,613
2013-2014	21,742	46,844
2014-2015	22,829	49,186
2015-2016	23,970	51,645
2016-2017	24,090	54,227

Cost figures assume a 6% annual increase and use as a base The College Board 1996/1997 survey data for the current school year (tuition, room and board, transportation, books and other expenses). Source: The College Cost Book by The College Entrance Examination Board, New York.

A child born in 1999 will probably start college in the year 2017, when a private college education could cost $54,000 a year! Of course, these are only average estimates. If you have a specific school in mind, you may wish to contact the school- now and when the anticipated date draws closer -for information on tuition costs, how they have changed and the trend for future increases.

Clearly, it helps to begin saving early, preferably as soon as the child is born. The idea is to save or invest as much money as you can and pay taxes on as little as possible. It's like buying a house: the more you've saved ahead of time, the less you'll need to borrow. Set aside or invest as much as you can, even if it's just a small amount from every paycheck.

Increase your contributions to the fund as your salary increases. Add extra cash from raises or yearly bonuses, as well as some of the money your child receives as gifts. Money that comes unexpectedly and has not been budgeted will not be missed. Also, if your older child has a part-time job, encourage him or her to put some of those earnings aside for college.

Strategies for Funding College Tuition

Growth Stocks and Growth Mutual Funds.Good investments in the stock market have the potential to provide better returns than insured, fixed-rate investments (such as savings accounts and CDs, which are generally FDIC insured) - if you have time to let the money ride the ups and downs of the market. This is a long-term approach to investing. And remember: What the stock market did in the past is no guarantee of how it will perform in the future.

The word to look for here is growth. When assessing the growth potential of a particular stock, consider looking for long-term appreciation rather than dividends. Growth stocks also allow you to postpone paying taxes on the capital appreciation realized until you withdraw funds.

Investing in just one or two stocks is always risky. If you'd like to participate in the growth potential of the stock market with less risk, consider a growth mutual fund. Money invested in such a fund is professionally managed and is usually diversified over many stocks, which helps reduce risk. Also, you can start investing in mutual funds with a relatively small amount of money.

U.S. Savings Bonds (Series EE).You need only go as far as your local bank to invest in Series EE U.S. Government Savings Bonds. The face values of these bonds range from $50 to $10,000, but you buy them at only half their face value. For example, when you buy a $50 bond, you pay $25 for it. The interest rate paid on these bonds varies, and EE bonds reach face value in a maximum of 17 years.

These bonds can offer substantial tax savings if they're used to pay qualified higher education expenses. If all requirements are met, no federal income tax is due on the interest. To get this important advantage, you'll need to follow certain guidelines. Among them: The savings bonds must be issued in 1990 or later and be purchased in one or both parents' name(s)-not the child's. Married taxpayers must file a joint return. The owner must be at least 24 years old before the bond's issue date. The bonds must be redeemed by the owner in the year they're used to pay for qualified higher educational expenses. Qualified higher educational expenses generally include tuition and fees and exclude room and board. Talk to your tax advisor and the person selling you the bond to be sure you've set up the purchase properly. Also, there are income restrictions on who can take advantage of this benefit. You'll need to call the Internal Revenue Service or your tax advisor to verify your eligibility.

Life Insurance.You shouldn't purchase life insurance unless you need protection. If you have a permanent life insurance policy paid with fixed annual premiums, you generally have the option of borrowing against its cash value. Of course, the amount of cash value available to borrow against varies, depending on the specific policy. The death benefit will be decreased by the amount of the outstanding loan. The interest rate charged on such loans is often reasonable, and in many cases you can pay back the loan on a flexible schedule. Talk to your insurance representative about the advantages of life insurance when planning your child's college education.

Prepaid Tuition Plans.Certain states, such as Alabama, Alaska, Colorodo, Florida, Massachusetts, Michigan, Ohio, Oklahoma, Pennsylvania, Tennessee, and West Virginia offer various types of prepaid tuition plans, generally for students attending state schools. Residents of these states can buy a contract or bonds at a fixed price, based on the rates of college tuition today. Payments can be made in lump sums or monthly installments. The state, in turn, invests the money to earn the difference between the amount you are paying and the projected cost of tuition at the time your child reaches college age. Those who sign up are fully protected, as the state assumes all the risk of the investments. Check with your state's commission on higher education to see if a prepaid tuition plan is available where you live.

Prepaid tuition plans are not for everyone. They mostly attract middle-income families who tend to be more conservative in their investments. Lower-income families using this option may jeopardize their chances for state aid and forfeit money needed for immediate essentials. If you're interested and a plan is offered in your state, you'll want to know if it covers only the cost of tuition, or room and board, too. Also, check to see if it applies to other than state schools. Finally, confirm that your original deposit will be returned if your child attends a private or out-of-state college, is not accepted at a state school or chooses not to attend college at all.

Savings Plan Trusts. Certain states such as Connecticut, Iowa, Kentucky, Louisiana, Massachusetts, New Hampshire, and New York offer special college savings accounts known as savings plan trusts. These accounts allow the contributor to save as little or as much as they like on behalf of a designated beneficiary's qualified education expenses. Contributions may be as little as $25. These accounts may guarantee a minimum rate of return and generally provide favorable tax treatment. The monies from the account may be used at any qualified institution of higher learning within the United States. If you move to another state, the money in the trust goes with you. Some savings plan trusts allow monies to be used for other family member's qualified education expenses. Check with your state's commission on higher education to see if a savings plan trust is available where you live.

Hope Scholarship Credit. Generally, for tax years after 1997, this credit will reimburse up to $1,500 per year of the cost of tuition and fees paid during the first two years of secondary education for joint filers with adjusted gross incomes of up to $80,000 and single filers up to $40,000. This credit phases out as your adjusted gross income increases and you are not eligible for this credit if your joint income is above $100,000 and single income is above $50,000.

Lifetime Learning Credit (LLC). Effective July 1, 1998, this credit will reimburse up to $1,000 of college tuition and fees per year through the year 2002 and $2,000 each year afterward. To qualify for the full credit, a taxpayer would need to spend $5,000 on qualifying expenses through 2002 and $10,000 each year after. Parents with more than one child may claim a LLC for one child and a HOPE credit for a different child in the same year. The two credits, however, may not be claimed in the same year for one child.

Educational IRAs. You are now able to set up IRAs for the purpose of paying college expenses. Contributions are allowed until your child reaches 18, and contributions may not exceed $500 per child per year. The $500 limit is phased out for joint filers with income above $150,000, and single filers above $95,000. Contributions are made with after tax dollars. There is no tax deduction. This type of IRA allows you to make withdrawals for the purpose of paying college expenses. Neither ordinary income tax nor the 10% penalty for premature withdrawals apply if the distribution is used for tuition, fees, books, and room and board, and the taxpayer has not claimed either a HOPE or LLC credit in the same year as the distribution.

CDs and Bank AccountsBank Certificates of Deposit (CDs) and bank savings accounts are two other places to put college savings. Although CDs and bank savings accounts are generally FDIC insured, they generally offer a lower return potential than other investment vehicles and are most appropriate for those with short-term goals.

Tax Considerations

Even if you invest wisely and defer the tax liability on savings for your child's college fund, you'll have to come up with the taxes when you liquidate those investments. Chances are you'll be faced with taxes at a time in the future when you are likely to be in a higher tax bracket and have other additional expenses. You'll need to be sure your investments earn enough to cover the anticipated taxes.

It's important to note, too, that tax laws are constantly changing. Consult your tax advisor before you begin investing, then check back regularly. If tax law changes negatively affect your college investments, you may want to move the money. How and when you move the funds also can affect taxes, so be sure to talk to your tax advisor first.

Here are just a few examples of tax considerations affecting college funds:

• Loans. If you plan to take out a loan to help pay for your child's college expenses, the interest may now be deductible. Generally, if the taxpayer's adjusted gross income is below $60,000 for joint filers and below $40,000 for single filers the following interest may be deductible. The deduction is phased out ratably from $40,000 to $55,000 for single filers and from $60,000 to $75,000 for joint filers.

Year Offest Tax On
1998	$1,000
1999	$1,500
2000	$2,000
2001 and beyond	$2,500

A deduction may be claimed only on interest paid during the first 60 months in which interest is owed. Students may claim this deduction only if they are not claimed as dependents on parent's returns.

• UGMA accounts. You can put assets in a Uniform Gift to Minors Act (UGMA) custodial account for a child. However, if the child is under age 14, all income earned by these assets above a certain level (determined annually by the IRS) is taxed at the parents' income rate, whether or not the parent is the custodian. For children 14 years old and older, the income on assets in a UGMA account is generally taxed at the child's rate. You should keep in mind that putting assets in your child's name may reduce the amount of financial aid he or she is eligible to receive.

Other Avenues for Revenue

Even if you start early, it may be impossible to save enough for your child's college education. That doesn't mean, however, that college is out of the question. You have other cost-saving options available.

Student Strategies. While they may not be options you should rely on, there are some strategies students can follow to help reduce their expenses prior to entering college and once they're in college. For example, many college students, particularly those who commute to a local school, are able to work part-time and summer jobs to help subsidize their tuition or simply to earn spending money. Be aware, however, that money earned by the child prior to college may reduce his or her eligibility for financial aid. Some colleges offer cooperative education programs where students rotate study with periods of career-related work, allowing them to earn money and credits at the same time. However, it may take more than four years to complete a degree through a cooperative education program. Ask the college admissions office about the specifics of their program.

Depending on a child's scholastic ability, he or she may be able to earn college credits by taking college courses or advance placement exams while still in high school. First- and second-year college students can also take College Level Examination Program tests for course credit. These options can represent a significant savings over the cost of a full-semester course in the classroom. Check with your child's high school guidance counselor or with the college admissions office for eligibility requirements and program specifics.

Another cost-savings possibility is to attend a community college for the first year or two, then transfer to a four-year college to complete a degree. This can be a more affordable approach to receiving a degree from a prestigious institution that you may have been unable to afford for four years or which may have been more competitive to gain entrance as a freshman.

Financial Aid. Think of this in broad terms. You needn't be the sole source of funding for your child's higher education. For example, when your child receives a gift of money, put it into a college fund. When grandparents ask what to give for birthdays, suggest college fund contributions.

And don't forget the traditional sources of financial aid: scholarships, grants, work-study programs and government loans. Your child's scholastic record, course of study, athletic ability and choice of college are just a few of the variables that may affect the availability of these options.

If your family meets certain financial criteria, the federal government has a program of low-interest loans with extended payment terms. Relying too heavily on loans, however, is costly and can burden graduates with large debts just when they are working to establish their financial independence. Also, you should be aware that government financial aid programs are subject to change.

Home Equity. If you bought your home when your child was small, you're likely to have built up a significant amount of equity by the time college is in the picture. You can tap that resource for your child's education with a home-equity line of credit. Interest payments may be tax deductible.

How to Calculate Estimated Four-Year College Costs

If you want to start saving regularly for your child's education, the following steps will help you estimate the amount that you will need to set aside. Tables 1 and 2 will be used in making your calculations.

Table 1
	Inflation Factor
Years Until College	4%	6%	8%	10%
1	1.04	1.06	1.08	1.10
2	1.08	1.12	1.17	1.21
3	1.12	1.19	1.26	1.33
4	1.17	1.26	1.36	1.45
5	1.22	1.34	1.47	1.61
6	1.27	1.42	1.59	1.77
7	1.32	1.50	1.71	1.95
8	1.37	1.59	1.85	2.14
9	1.42	1.69	2.00	2.36
10	1.48	1.79	2.16	2.59
11	1.54	1.90	2.33	2.85
12	1.60	2.01	2.52	3.14
13	1.67	2.13	2.72	3.45
14	1.73	2.26	2.94	3.80
15	1.80	2.40	3.17	4.18
16	1.87	2.54	3.43	4.59
17	1.95	2.69	3.70	5.05
18	2.03	2.85	4.00	5.56

Table 2
	Investment return, after taxes, of:
Years Until College	4%	6%	8%
1	.981	.971	.962
2	.481	.471	.463
3	.314	.305	.296
4	.231	.222	.213
5	.181	1.34	1.47
6	.148	.139	.131
7	.124	.116	.108
8	.106	.098	.090
9	.093	.085	.077
10	.082	.074	.066
11	.073	.065	.058
12	.065	.058	.051
13	.059	.051	.045
14	.054	.046	.040
15	.049	.042	.035
16	.045	.038	.032
17	.041	.034	.029
18	.038	.031	.026

Source: COLLEGE COSTS,1996-1997 ed., reprinted with permission from LIMRA International, Inc., Hartford, CT 06141.

College Costs Worksheet

Step 1: Enter your child's age. _______________________(1)
Step 2: Enter the number of years until your child begins college. ____(2)
	Public School	Private School
Step 3: Enter the estimated current annual cost of college, selected from the here:	$____________________(3)	$____________________(3)
Step 4: Multiply this by an inflation factor selected from Table 1	____________________(4)	____________________(4)
Step 5: This equals your child's future annual college cost.	____________________(5)	____________________(5)
Step 6: Multiply this by 2 for a two-year college or 4 by a four-year college	____________________(6)	____________________(6)
Step 7: Your child's estimated future college cost	$____________________(7)	$____________________(7)
Step 8: Select from Table 2 the investment factor for the investment return that you expect to acheive after taxes.	____________________(8)	____________________(8)
Step 9: Multiply the estimated cost in Step 7 by the investment factor in Step 8. This is the amount of money that you need to put aside regularly each year to fund your child's education. Divide this amount by 12 to obtain the monthly figure, and by 52 to obtain the weekly figure.	$____________________(9)	$____________________(9)
Yearly savings = Monthly savings = Weekly savings =

For More Information

REFERENCE MATERIALS

Getting Into College: A Quick Guide to Everything You Need to Know Pat Ordovensky, Peterson's $8.95

Financial Aid for College: A Quick Guide to Everything You Need to Know Pat Ordovensky, Peterson's $8.95

College Check Mate: Innovative Tuition Plans That Make You a Winner Debra Wexler, Octameron Press $7.50

PAMPHLETS

The quarterly Consumer Information Center Catalog lists more than 200 helpful federal publications. For your free copy write Consumer Information Catalog, Pueblo, CO 81009, call 719-948-4000 or find the catalog on the Net- http://www.pueblo.gsa.gov

For a copy of the pamphlet Teaching Kids About Money, send $1.00 to the National Center for Financial Education, P.O. Box 34070, San Diego, CA 92163.

INTERNET INFORMATION

Visit FinAid: The Financial Aid Information page on the World Wide Web (http://www.finaid.org). You'll find a variety of free information including a database of 180,000 private sector scholarships, fellowships, grants and loans.

College Savings Plans Network
1-877-CSPN4YOU
www.collegesavings.org
The federal government is a major source of financial aid. Start by filling out the free Application for Federal Student Aid (FAFSA), available from your child's high school counselor or by calling 1-800-4-FEDAID.

Send inquiries to: Info@SoaringEagleSoftware.com

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