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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
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"You want to frontload your savings if you can," says Cramer, citing the additional gift-tax advantage that comes with 529 savings plans. With traditional savings accounts or bonds, individuals (whether they are parents, grandparents, relatives or benevolent strangers) may give up to $12,000 per year to a designated beneficiary without paying a cent of gift tax. The 529 plans, however, come with an accelerated gift option, allowing those same parents, grandparents, relatives or benevolent strangers to lump five years' worth of monetary gifts into one grand gift of up to $60,000, giving those funds a few additional years to accrue interest.

Save steadily
"Our financial strategy was to be eternally cheap," says Martha Nicholson, a school teacher and mother of one college grad and one third-year student at Virginia Tech. "We always bought a used car instead of a new car, we didn't eat out a lot, we took modest vacations and maintained an eye for sales. We just made the most out of a dollar." 

Storing up approximately $300 per month in savings bonds starting when her children were born and receiving a small amount of financial help from academic scholarships, Nicholson paid for both of her children to attend in-state public universities without taking out a dime in student loans.

Sacrificing in small ways can amount to big savings years down the road. Families, for example, who cut $20 per week from their leisure budget -- the equivalent of giving up that $4 morning latte every day -- and invest that cash in a mutual fund or 529 plan with a 4 percent interest rate beginning on the day their child is born, will have more than $27,000 saved by the time their child graduates high school. Families who save $50 per week (the equivalent of one family meal out) will have more than $68,000 in the bank when tuition time rolls around.

The problem, suggests the AllianceBernstein survey, is that many families simply don't choose college savings over discretionary spending. Thirty-eight percent of all parents surveyed admitted that they had spent more on consumer electronics, such as MP3 players and computers, in the past year than they had saved for their child's education, and more than half invested more money in dining out than in higher-ed funds.

Make it automatic
To make saving simpler, Nicholson suggests using direct deposit to have a portion of one or both parents' paychecks automatically invested in the savings plan of your choice. "That way it's done," she says, "and you don't spend your whole check and think, 'Oh, maybe I'll try to save something next month.'" 

Breaking down monthly payments into weekly or even daily deposits can also help ease financial tension, turning a $200 monthly savings goal into a series of smaller, more manageable sacrifices -- giving up a night at the movies here, lunch in a café there.

-- Posted: July 2, 2007
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