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College Financing and Career Guide 2007
Financing for college
Don't despair! From student loans to college grants, there are many options for paying for an education.
Financing for college
5 ways to make college saving a cinch

The only thing more daunting than the college admissions process is the college tuition process.

5 steps to save for college
1. Prepare to save
2. Start early
3. Save steadily
4. Make it automatic
5. Get the family involved

Parents with students just now entering higher ed can expect to fork over an average of $25,911 for a public college or university or a daunting $98,646 for private institutions over four years in tuition and tuition inflation alone. Those with younger students have it even worse with tuition as both public and private institutions are expected to more than double in the next 10 years.

According to a survey by AllianceBernstein Investments Inc., parents are anything but financially prepared to foot those hefty tuition bills. The study reports that the average amount families save for college will cover only 23 percent of their child's undergraduate bills, leaving thousands to be covered by scholarships and grants that may or may not come through. The solution, experts say, is to save smart, save soon and save often.

Prepare to save
Winning the war against college costs isn't as simple as stockpiling cash, says Eric Cramer, a vice president financial consultant with Charles Schwab. "There are a lot of parents who shouldn't be putting money away for college right now," he says. "Parents in the beginning of their earning potential might have a home equity line of credit, a car loan, credit card debt. Saving for college may not be right until they have some financial wherewithal." 

Before starting a college savings plan, Cramer advises parents to first pay off any lingering debt,  including car loans, old student loans and personal loans, then to save up a financial nest egg equivalent to at least six month's worth of rent or mortgage payments just in case of disaster.

When choosing which debt to eliminate first, credit cards are a great place to start. According to Sallie Mae, credit card interest rates average at 13 percent -- nearly twice the interest rate for a federal Stafford student loan -- and can run as high as 30 percent. Eliminating credit card debt early can save you a significant chunk of change that can later be put toward a child's higher-ed fund.

Start early
In today's world of tax-advantaged college savings plans, stashing your cash in a plain-Jane savings account is like using an abacus to do your taxes. Thanks to 529 prepaid and college savings plans, parents can save for school without paying any federal income tax on their savings and, if they choose a state-sponsored plan, often without paying state income taxes on the funds either.

The secret to making these plans as lucrative as possible, says Cramer, is to maximize your contributions early on, giving your money ample time to grow before your child applies for college.

-- Posted: July 2, 2007
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