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Leaving aside the question of whether you should pay for your child's education (I'm in the "of course you pay for it" camp, but this question tends to polarize people), the real question becomes "how"? We have one in college and one on the way, and our mantra has now become "save, beg, borrow, defer".

Save.

This is a no-brainer. If given the choice of paying for college by putting aside $100 a month from the day your child is born, or trying to make a tough financial call three weeks before you load up the family car and head for State U, go for the savings every time. As with so many other personal financial decisions, the beauty or evil of compounding interest can either hurt you or help you. Save early, and the cost of your child's education is being effectively reduced every day by the interest. Wait until the first bill shows up and you may well pay the bank nearly as much as you pay the school.

How much do you want to save? You can likely find any number of calculators on the Internet to give you a good estimate. Here are a few rules of thumb: college costs are increasing faster than the rate of inflation, your investments should become more conservative as college move-in date approaches, and the earlier you start, the less you need to set aside.

Beg.

The business of transferring wealth to the incoming college generation is huge. While we might not all be the subject of endless athletic recruiting calls, there is not a student alive who does not qualify for some kind of scholarship. If you are lucky, the school will match your child's needs and skills with a grant or other scholarship aid. If not, a quick Internet search will point you to a handful of scholarship clearing houses. Is your pride and joy a left-handed tuba player? There's a scholarship for that. Planning to use a geology degree to support environmental studies? That, too.

Borrow.

Most of us, despite our best intentions, do not manage to save enough to drop a giant check to the school. When it comes time to pay the bill, you may very well need to borrow to supplement your savings. Your most likely loan option will be a PLUS (Parent Loan for Undergraduate Studies) loan. The interest rates on the loans might not be quite as good as some of the rates on subsidized students loans, there are not terrible. But the loan in is your name, and repayment begins pretty quickly.

Defer.

Time is money. And as with compounding, using time to your advantage can be a part of your strategy. Your first deferral plan is probably to invest in a tax-deferred 529 college savings plan. Named after the section of the internal revenue code, these investment vehicles must be overseen by a state and they allow your earnings to grow without the immediate effects of taxation. In fact, earnings on 529 plans can currently be taken free of federal tax (check your state laws for whether the earnings are free of state taxes as well). Deferring or eliminating the tax on your college savings earnings puts time on your side. But you can also defer in a different way: unlike your PLUS loans, which go into repayment almost immediately, your child's subsidized student loans do not. One way to defer the cost of paying for your child's tuition is to have the child maximize their subsidized loans. You can make the payments for them (some years down the road) and your child gets the added benefit of establishing a credit history in their own name.

Congratulations on your choice to pay for the education of your children. If you save, beg, borrow, and defer, you will be on your way to providing one of the most proven effective ways to provide your child with a leg up on the world - all without breaking your retirement piggy bank wide open.

Learn more about this author, Sue A. Sponte.
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