Three Basic Sources for College Funding

Financial aid

Many families apply for financial aid to help with college tuition and expenses. A financial aid program can help reduce the gap between what you have and what you'll need.

First, researching available scholarships can help you decide which school your child can attend. If your child or grandchild has an outstanding academic or athletic record, scholarships can reduce the cost of college.

Secondly, though federal grants may be difficult to obtain, you do not need to repay them.

And finally, student loans can defer college costs; however, they must be repaid.

Student contributions

When planning for college, consider how much, if any, the student will have to contribute. If you expect the student's contribution to be significant, it is important to teach him or her to begin saving early and put the power of compounding to work to help reach the projected financial goals.

Family contributions

Consider how much you plan to contribute to the student’s college expenses. Planning early can help ease the financial burden.

No matter how you choose to pay for college expenses, an experienced financial advisor can help you establish your own plan.

One way to establish your college investment program is to make a lump-sum investment in one or more mutual funds. You might want to consolidate multiple smaller savings or investment accounts into a single education account for each child.

Subsequent investments can be made automatically and systematically from your personal checking account. Ask about electronic fund transfer.

Another way to establish your college investment programs is to have parents, grandparents, other family members or friends give each child up to $12,000 a year ($24,000 for couples) without incurring gift taxes. Additionally, the gift can reduce estate taxes.

However, you do not have to make a large, lump-sum investment to get a college investment program underway. One of the strengths of this program is that it offers an opportunity to build a future college fund by making modest, systematic investments in mutual funds. And making investments on a regular basis offers you an opportunity to use a time-tested investment method known as dollar-cost averaging. Dollar-cost averaging does not assure a profit and does not protect against loss in declining markets. This type of plan involves continuous investment, regardless of fluctuating price levels, and investors should consider their financial ability to continue their purchases during periods of both high and low price levels.

With dollar-cost averaging, you invest a fixed amount of money at regular intervals, regardless of market price. This makes it possible to buy more shares when prices are low. As the fund's share price increases, the investment is worth more.