HOW TO PLAN FOR YOUR CHILDREN'S COLLEGE COSTS

Higher education is expensive, but there are ways to meet the cost without taking a trip to the poorhouse. The key is to focus on the goal early and to remain committed. Even if your child is still in diapers, it's not too early to plan for the diploma.

Start early. Estimate the cost of your child's education as soon as possible. Remember that the cost of college will increase each year. (Costs are rising faster than the annual inflation rate.) If your child is 2 years old now, you'll want to set aside monthly to invest in order to pay tuition at a private four-year college in 16 years.

Skip ultra-conservative investments. Savings Bonds, CDs, and other traditional low-return choices will not give you the return you need. They are earning about 5% annually. One exception: if you begin putting money away only three or four years before it's needed, you might have to stick to bonds or CDs. Other types of investments - which can earn double-digit returns - are good only for the long-term investor (five years or more).

Invest in stock mutual funds. The average return over the past 80 years has been about 11% per year. The safest, smartest way to invest is in no-load mutual funds, and although there will be some natural fluctuation of the investment, over the long run, they will bring you the greatest return.

Beware of special college funds. Many mutual fund and insurance companies offer specific funds for college-bound children. They usually are overly-conservative. If you have the time, stick with the no-load stock mutual funds.

Use your age. If you will be 59 1/2 or older when your child goes to college, consider a variable annuity for college investing. A variable annuity is a tax-deferred investment which is available from a life insurance company. Your investment earnings are allowed to build up in your account without being taxed until they are withdrawn.

Forget UGMAs. A UGMA (Uniform Gifts to Minors Act) account is like an IRA in that it is not a particular type of investment in and of itself. It does offer a favorable tax situation to investors, and the parent acts as custodian. But since the account is in the name of the child, control of the account reverts to the child alone when the child reaches the age of 18 and college financial aid offices will require that about 40% of such investments titled in a child's name be designated as spendable on college expenses. Conversely, less than 10% of the parents' assets are required to be spent on the college expenses.

Investigate prepaid tuition plans. More and more states are developing programs which allow their residents to prepay the tuition costs for attending their respective colleges. Make sure you read all the fine print, especially if your child may later decide not to attend a state school.

Look for money. Take the time and trouble to investigate private scholarships and grant sources. More than 50% of scholarships are non-government and available through private sources. Access the web sites, library books, or college search services to find out what money is available.

James L. Paris is host of The Christian Consumer Advocate, a nationally syndicated talk show on the USA Radio Network. The founder and CEO of five corporations ranging from financial planning to life insurance, he appears on more than 100 radio and television talk shows each year.

The James L. Paris Companies are a group of for-profit organizations designed to help consumers live a prudent, cost-effective, worry-free financial existence. You may call at 1-800-727-4792 to find out more about their services.

James L. Paris Financial Services may be reached via email at JLParis@att.net, or visit their web site at www.JLParis.com. Their web site offers information and help on many financial issues and includes links to more than one million financial and consumer Internet sites.

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