Understanding available options and carefully mapping out a long-term strategy are key to successfully funding a child's college education. Several steps can help one meet this goal: start early; estimate projected needs; determine financial aid eligibility; select appropriate investments; take advantage of available tax deductions, credits, and savings incentives; and, if necessary, borrow wisely. The first three steps are discussed here; the remainder will be discussed in the next column.

Start Early

Although there are many ways to pay for college (eg, personal savings, current income, financial aid), the more personal savings one accumulates, the less one will have to rely upon borrowing, student loans, and other means of funding college costs. Starting a savings plan early produces benefits from compounding. For example, saving $3,600 a year (that is, $300 a month) and earning 10 percent a year would yield more than $125,000 after 15 years.

Estimate Projected Needs

As a person's income rises over time, he or she may find it easier to save a particular amount consistently. While some individuals may not be able to achieve their desired annual savings target currently, salary increases may allow them to save substantially more in future years. One strategy is to increase college savings contributions by the same percentage as one's salary increases (eg, for a 5 percent raise, increase savings contributions by 5 percent).

Determine Financial Aid Eligibility

One potential source of financial aid information is the College Board Web site (www.collegeboard.org), which includes a personal financial calculator to help determine financial aid eligibility. Familiarity with this type of information is necessary for two reasons. First, a person who expects to be eligible for financial aid probably can commit fewer current resources that may be needed for another financial priority to a college savings program. Second, if qualifying for financial aid is likely, a person should minimize the amount of assets held in a child's name. in general; colleges expect an adult to contribute no more than 5.65 percent of his or her assets per year for tuition, but they expect contributions up to 35 percent of assets held in a child's name per year.