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2006: A look back - A look ahead  
  Change was the name of the game in 2006 while the biggest push for reform in 2007 will be aimed at college-related debt.
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Paying for college: best strategies for the year

If you're about to launch a full-throttle college savings plan, take note. A number of changes affect those footing the college bill in the coming year. That means even the most tried and true financing strategies may need some adjusting.

The best moves to make in 2007:

Start saving now
This No. 1 rule merits repeating. The cost of higher education isn't getting cheaper, so unless you're expecting a huge inheritance or some other windfall, you have got to be prepared for some pretty hefty expenses.

"The gap between college grants and tuition is growing. More students are borrowing to pay the difference, and there's more concern about debt," says Sandy Baum, senior policy analyst at The College Board. "So, my biggest advice to families is they should save."

Whether you have toddlers who are years away from college or students scheduled to enroll in the near future, make a commitment to stash away as much as possible. Of course, how you invest money will depend on a variety of factors. How quickly do you need the cash? Are you willing to take on more aggressive investments? To maximize your money, you have to strategize.

Keep savings out of your child's name
Saving for college doesn't have to torpedo your odds of getting financial aid.

It's best to keep assets in the parents' names. That's because when financial aid eligibility is calculated, colleges rightly assume that parents have bills other than tuition (such as mortgage payments and retirement saving obligations). As a result, moms and dads only have to earmark 5.6 percent of their assets to higher education costs. Children have to pitch in more.

The (paradoxical) good news: Students can use less of their savings in 2007. For years, students have had to allocate 35 percent of their savings and earnings to college costs. But as of July 1, 2007, that level drops to 20 percent.

Avoid directing large sums to teens
Taxes are the other reason to refrain from making big financial gifts to students. The expansion of the so-called "kiddie tax" has made it far more expensive for a youngster to own, and later sell, investments.

Under new rules, childrens and teens up to age 18 must now pay their parents' rates on investment gains exceeding $1,700. In some cases that's as much as 35 percent on short-term capital gains and 15 percent on long-term gains. Previously, the kiddie tax expired on teens' 14th birthdays.

Invest in a 529 plan
Parents and grandparents, or anyone else for that matter, can help a child get a jump-start on college costs by investing tax-favorable 529 plans.

You can invest in any 529 plan that suits your fancy, even one that's not from your home state. There are no income restrictions for participating. The gifting limits let generous souls quintuple the annual gift exclusion amount of $12,000 (that's $60,000 a pop) as long as no subsequent donations are made for five years. Because 529s are considered the property of the account owner, typically not the student, they won't hamper a student's chances of scoring financial aid.

-- Posted: Nov. 1, 2006
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