Steps to make paying for college less traumatic

by Sandra Block, USA Today

If you're the parent of a high school junior, you're probably accustomed to unpleasant surprises. Pierced eyebrows. Purple hair. A sudden interest in your old Foghat albums.

Those shocks are usually temporary. The alarming increase in college costs is not. The average cost of attending a Big Ten Conference school is more than $15,000 in 2002, and many states are expected to increase costs for 2003.

The good news: Most students don't pay full freight. At four-year public colleges and universities, more than 75% of students receive financial aid, according to the College Board. In addition, there's still time to boost your college savings account. If your child plans to start college in 2003, here are some steps you should consider:

Invest in a 529 plan. These plans have become popular with parents of young children with lots of time to invest. But they can also provide a way to shelter your short-term college savings from taxes.

Interest and earnings on money invested in a 529 plan is tax-free, as long as the money is used for college. Many 529 plans offer low-risk portfolios that invest in bonds and money market funds. Larry Glazer, a financial adviser with H.C. Wainwright in Boston, suggests looking for a plan with a short-term bond fund.

One warning: Make sure the plan you choose doesn't have early-withdrawal penalties. A few plans penalize participants who withdraw money before a specific time period has elapsed, even if they use the money for college.

Likewise, if you buy through a broker or financial adviser, stay away from "B" shares, which often slap big fees on early withdrawals. You can research 529 plans at www.savingforcollege.com.

Review your assets. Even though you probably won't fill out your financial aid application until early 2003, you can take steps now to improve your eligibility. Among them:

• If you have cash in a bank account, use it to pay down credit card or other high-interest consumer loans. When determining how much financial aid to give you, colleges use what's known as an "expected family contribution," which measures how you can afford to pay. Money in your bank or checking account will be included when your EFC is calculated, says Mark Kantrowitz, a financial aid consultant and founder of www.finaid.org. However, credit card debt won't lower your EFC, no matter how high your monthly bills, he says. "You get no points for having credit card debt, but it counts against you if you have money in the bank," he says.
• Boost contributions to your 401(k) and other retirement plans. Financial aid formulas usually exclude retirement savings when calculating how much you can contribute, says Trent Anderson, managing editor of Kaplan's Conquer the Cost of College. Another benefit: Contributions to your 401(k) will reduce your taxable income, which could result in more financial aid.

  Put your child to work. Paying for college is a team effort. How to get your child off the bench:

• Encourage your child to start applying for scholarships for the 2003 academic year. There are thousands of scholarships available, and your child doesn't have to be a genius or basketball star to qualify. A good place to start is www.wiredscholar.com, operated by Sallie Mae. The site features a free scholarship search. Avoid companies that promise to find you a scholarship for a fee.
• Look into programs that allow your child to work while attending school. Many financial aid packages include work-study programs. Your child also may be able to find a job with a company that offers tuition assistance to its employees. One of the most ambitious tuition assistance programs is offered by UPS, which offers part-time employees up to $3,000 a year toward college tuition and fees. More than 28,000 UPS workers participate in the Earn and Learn program.

Companies with large call centers and big retailers also may offer tuition assistance programs in an effort to recruit workers, says Scott Smith, director of tuition assistance programs for Edcor, which administers the programs for several Fortune 500 companies. Talk to companies in your area about tuition assistance.

Now is also a good time to talk to your child about living on a budget, Anderson says. His advice to prospective college freshmen: "Live like a student while you're a student so you don't end up living like one after you graduate."

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