College Savings

Many people think that the more you save for your kid's college education, the less likely your child will receive any financial aid. That's simply not true. A big chunk of financial assistance actually comes in the form of loans. So, the more you save the less likely you'll need to borrow.

As long as you save wisely, you can minimize any reduction in your total aid package. One important key is to save in your name, not your child's. The aid formulas count only 5.6% of parental assets vs. as much as 35% of money saved in the student's name. This makes tax-advantaged programs like Coverdell ESA and 529 college savings plan especially useful. Federal Aid Rules regard those accounts as parental assets.

If you have already set up a college fund in your kids' name, you may consider spending the money on your child's behalf well before college (of course, if it's not a very high amount). For example, you may spend the money for SAT preparation or music lessons. At the same time you may deposit a comparable amount in one of those tax-saving programs in your name. The 529 plan is a great savings program with tax advantage.