There are no magic bullets that solve the financial challenge of stratospheric college costs, but using a combination of college funding strategies may help parents fund their child’s education with minimal impact to their own retirement plans.

Making College More Affordable

• 529 Plans. Saving early and as much as possible is critical to paying for a future college-funding goal. Doing it through a 529 Plan may be one of the more effective ways of saving for college since savings grow tax-free and the earnings may avoid federal taxation if withdrawals are used for qualified college expenses. Some states even add their own tax breaks to 529 Plans. Contribution ceilings are usually very high and may be made by parents, grandparents, extended family and friends.

• Prepaid Plans. If parents know that they will be sending their child to an in-state school, they may want to consider a prepaid plan, which allows state residents to lock in the tuition costs at public colleges in advance. These plans vary from state to state, but they may allow for refunds in the event a child decides to attend an out-of-state or private college.

• Coverdell Accounts. Similar to a 529 Plan, Coverdell Accounts provide tax-advantaged growth and withdrawals, but have a broader definition of what constitutes qualified education expenses. However, the contribution ceiling is $2,000 and individuals must have a modified adjusted gross income of less than $110,000 (single) or $220,000 (joint) to be eligible to contribute.

• A budding Einstein will likely have scholarships thrust upon him or her, but most children will need to hunt for private scholarships. In addition to working with the child’s high school guidance office, there are a plethora of Web sites that may help parents find a scholarship, such as FastWeb.com. Don’t overlook possible scholarships that may be available within the local community.

• Community College. Attending a community college for two years and spending the next two at a four-year school will give a child the same degree that is received by a student who went all four years; however, college is more affordable by pursing this path.

• Earn Credits Before College. High school students can take Advanced Placement (AP) classes or basic college courses at less expensive schools to cut the cost of a four-year education. AP classes may be used to apply credits toward a college degree or skipping prerequisite courses.

Borrowing the money is always an option, but saving in advance and finding cost-cutting strategies is far more preferable to taking on debt that can weigh on a parent’s retirement or a child’s start in the adult world.

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