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A guide to college savings

Published Feb. 16, 2013

Look at your cute baby, and imagine the little tyke wearing a high school cap and gown about 17 years from now. At that point, the estimated sticker price for a college education will be about $161,500 at a state or $426,400 at a private college.

If you want to make paying for college as painless as possible, you are going to have to start planning — now.

If you start saving $100 a month for college and invest it in a balanced mutual fund you should have about $40,000 by the time junior goes to college.

Tip No. 1. Avoid taxes. Put either the $2,000 limit a year into a Coverdell college savings account, or if you can manage to save more, use a ''529'' college savings plan offered by a state government. Anything you earn in these accounts will be tax-free if it goes to pay for college. Grandparents and other relatives can contribute to a 529 plan as birthday and other gifts.

Elementary school

Chose a 529 plan with low fees and solid performance. You don't have to stick with the plan in your state. For some recommended funds, check or

Some 529 plans offer "age-based" options, in which the closer the child gets to college, the more conservative the investing becomes so there's less chance of a loss when the first tuition bill rolls around.

Consider setting up your account to automatically move money into it each payday.

Starting high school

It's critical to get ready to seek scholarships before your child's sophomore year in high school because many deadlines arrive during the fall of that year.

Two valuable scholarships sites are and

Start having your child record all activities and honors. Scholarship applications and college applications require a list of activities and references from people who saw your child excel.

Read Secrets to Winning Scholarships by Mark Kantrowitz and How to Go to College Almost for Free by Benjamin Kaplan for strategies on winning scholarships.

Finally, if children can succeed in advanced placement classes and tests, they might save money by eliminating a semester of college.

High school junior year

This is the most critical year if your family is going to be eligible for financial aid. To understand what's likely for you, do the "federal" calculation and the "institutional" calculation at, or use the calculator on the site for the college your child adores.

If you think you will be eligible for aid, don't make the common mistakes that sabotage the possibility. The biggest mistake is keeping savings in a child's name rather than the parents', but others can include refinancing a home and saving the money for college, converting a regular IRA to a Roth, or selling stocks, bonds or mutual funds in your child's senior year or thereafter to pay for college. All could result in losing grants

Before December of your child's junior year, sell investments that will pay for college. Also, go over every account in your name and your child's name to make sure the money is in the right place and won't sabotage your chances of getting grants.

Each year you want aid from a college, you will fill out what's called a FAFSA form, a Free Application for Federal Student Aid, and at private colleges maybe a PROFILE form too. Embedded in those forms is a formula that says whether you will get aid. To make the determination, colleges will require you to submit the forms and your tax return. You want your accounts and your tax return to be in the best shape for aid, starting with the tax year that begins Jan. 1 of your child's junior year.

Senior year

Because public colleges have less aid to offer middle-class families than private schools, students from moderate-income families should apply to private and public schools.

Students can get more aid from some schools based on the diversity they will bring to the class. For example, a Midwesterner might be more attractive to a private school on the coast than a student who lives in that state.

The student should apply to about 10 colleges. Each college will treat aid differently. When the offers arrive, if the student has been accepted to one college that's provided a lot of aid but gets little offered from a top-choice school, parents can ask the financial aid officer at the latter to sweeten the deal.

Students should not take on total student loans that will be more than their likely first-year salary. Details on starting salaries are available at Georgetown University's website:

Pick loans carefully with the help of the college financial aid office. Federal Stafford and Perkins loans, which you get at college aid offices, tend to be best because they are covered by a helpful federal program. After a student finishes college, the government will temporarily reduce loan payments on federal loans if the person can't find a job or has a low-paying job. The government has more information online at

Sometimes private loans can carry lower interest rates than the 6.8 percent on federal unsubsidized Stafford loans, but shop carefully. Some carry teaser rates that will shoot up if a payment comes in late.

Parents can also borrow with Federal PLUS loans at 7.8 percent, but parents shouldn't go in debt if their children can get federal loans or low-interest loans offered by state departments of education.