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Financing College

Where to Put Those Hard-Earned Bucks

By Felicia Hodges

These funds are issued via shares from an investment company that is obliged to redeem or repurchase them from the owners upon demand. "If children are in grade school for example, age 8 you still have 10 years to save up for college," says Jennifer Ridley Hanson, director of financial planning for Financial Finesse, an agency that educates women on how to better invest and save money. "Mutual funds are a great investment vehicle to provide diversification and professional management." She suggests looking for a fund with a good track record and low expenses.

Grants are "free money" funds that are awarded by the college or other organization (such as a civic group, fraternity or company). They don't have to be paid back. Loans are funds that are borrowed and re-paid with interest, usually after graduation. Many families try to fund college without the use of loans because the interest that has to be repaid can add several thousand dollars to college costs. But up to $1,500 of the interest paid per year for loans is allowed to be deducted from your adjusted gross income on your tax return, although it is limited to the first 60 months of interest.

"I would also encourage parents to not rule out financial aid," Hanson says. "If income allows, many federal and state-funded financial aid programs are available to apply for." Work-study programs are also available through your child's college. The school's admissions office would be able to direct the student on applying for work-study programs.

"A parent should not feel they have failed if they have not saved enough for their children's education," says Brian Cronkright, a college financial planner and member of the National Association of Financial Aid Administrators. "There are a number of loan programs for parents that can be utilized at the time a child goes to school." If you are willing and able to borrow money, the entire cost of college including tuition, room and board, books and supplies can be borrowed under programs like the Federal Parent PLUS Loan Program, he says.