April 14, 2010 (WPVI) — According to collegeboard.com, it’s best to pay as much of your college expenses out-of-pocket as possible, before turning to loans.

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While there are low-interest loan options available, many funded by the federal government, even low interest adds up. College graduates lucky enough to win well-paying jobs can still find it difficult to pay off a heavy college debt. And of course, not every graduate walks into a high salary. It’s also worth considering that some students drop-out and never graduate. but they also have to pay off the loans. In each of these examples, the college debt has a chance of adding extra strain, both at work and at home, for years after graduation. the trickle-down effects can include difficulty in getting a car loan or a mortgage, saving for retirement, and funding their own kids’ collegiate futures.

With costs rising, even at the less expensive state schools, the importance of getting an early start on a college savings account is pretty easy to comprehend. College tuitions are currently increasing by as much as $2000 a year or more. Universities that currently cost about $50,000 a year are liable to run $70,000 or more in ten years. And while school administrators are becoming more and more creative in finding ways to ease the cost (on-campus jobs, institutional aid), affording college looks to be an even greater challenge for future students and their families than it is now.

Most current sources on the subject strongly recommend a 529 savings account, given its low-maintenance nature, and of course, its inherent tax breaks. but whether you decide to open a 529, or some other more traditional fund, putting money away early is a great way to make things easier on yourself and your kids down the road. What’s more, it doesn’t necessarily take that much to make a difference.

using an on-line college savings calculator (I used this one: youngmoney.com/college-savings-calculator), it’s easy to see that even a minimal contribution, starting on your child’s first birthday, can carve a large chunk out of his or her total college bill. A $100 per month contribution (about $23 per week) will leave you with roughly $40,000 in the bank by the time your child’s first year of college rolls around, based on an 8% return. this won’t be enough to cover all of your child’s expenses. but other cost-saving steps (like using a community college for the first year or two, living at home, working an on-campus or summer job, merit and need-based aid) will get you closer. And even if you or your child still has to borrow to cover one or two years, it’s a lot better than borrowing for all four.

another idea is to ask mom, dad, or other close relatives to help out by easing back on the toys when birthdays and holidays come around (how much of that stuff gets underused by your kid, anyway, right?). instead, ask them to make a couple of annual college fund contributions with the money they save.

if you haven’t gotten an early start on saving, it’s never too late. Late savers are often further along in their careers and may be able to afford a greater monthly contribution. What’s more, there are no limits to how much you can contribute. And remember, once the money’s in a 529 account, you’re done paying taxes on it. when you withdraw it to pay off college expenses, you get to use all that interest you earned, tax-free. Late savers may also benefit from the Upromise program, which turns a percentage of the cash you spend at many retailers and businesses into kick backs into your 529. see my blog, “What is Upromise” for more information.

when it comes time to take out loans, collegeboard.com and other sources recommend that you begin by exhausting whatever federal loans are made available to you first, before investigating other options. this is because the terms on these government-sponsored products are often better than what you’ll find on the open market.

Read more Parenting Perspective blogs by visiting the Parenting Channel on 6abc.com.

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