As the cost of higher education continues to rise, the idea of helping to put your child through college may seem daunting. But don’t let it overwhelm you.

Whether you’re saving for a baby or for an older child’s education, there are options available. A sound investment strategy and a thorough review of financing opportunities can help put you on the right track. And investing in your child’s future can be the best investment of all.

A Word About Retirement

While a college education may be one of the most important gifts you can give your child, so, too, is planning a secure retirement for yourself so that your children are not burdened with worry or support for you when they are starting out in a life of their own. As you save for their education, be sure you are not neglecting your retirement plan as well.

See our Retirement Planning pages for more information, and talk to a financial professional about balancing the your plan for both your education and retirement goals.

Getting Started

The first step is to set your goal. In doing so, you may want to ask yourself these questions:

• Will your child consider both private and public colleges? Private school can cost as much as two to four times more than public school.*
• How many years is it before your final tuition bill is due: 12 to 20, 8 to 11, or less than 8? The amount of time you have to save will impact your investment approach.
• How much can you afford to contribute to a plan? It’s best to start saving as early as possible, even if you’re only able to save a small amount at first.

For help developing or fine-tuning your savings plan, you may wish to use our College Savings Calculator. It will help you estimate your monthly contribution amount so you can keep you on target for your goal.

It’s also wise to check with your employer to see if your company offers a college savings program.

529 Plans

When exploring ways to invest for your child’s education, 529 plans have specific advantages.

• Any earnings are able to grow tax-free
• Withdrawals aren’t taxed when used by the designated beneficiary for the purpose of a higher education.

The tax breaks are impressive, but depending on the type of plan you choose, there are some risks involved.

• Prepaid Plans allow for purchase of tuition credits at today’s rates for use in the future. Performance is based upon tuition inflation, so essentially they work in part as insurance against rising education costs. While the rapidly rising cost of tuition makes these accounts seem appealing, there are significant limitations to consider. They restrict school selection and they could affect your child’s financial aid package.
• Savings Plans typically consist of equity investments and growth is based upon market performance. Some use age-based portfolios that start out aggressive and become more conservative as the beneficiary grows older. Some use more "static" portfolios, where the asset allocation in each portfolio remains the same over time. Investments in such plans may perform well, but if they don’t, you could lose money.

Keep in mind that withdrawing funds for a use other than qualified education-related expenses will result in a tax on the distribution, as well as a 10% IRS penalty on earnings. Some 529 plans have fees associated them that can impact your account’s return. As with any investment plan, be sure to consider all aspects, and talk to a financial professional if you have any questions.**

Coverdell Education Savings Accounts

One college investment account that works along the lines of an IRA is the Coverdell account. It allows contributions of up to $2,000 post-tax annually. Any earnings accumulate tax-free and can be withdrawn tax-free when used for education-related expenses at qualified institutions. These institutions include primary and secondary schools, as well as colleges and universities. There are income and age limits, however, and it’s important to be aware of the rules and adhere to them, as any fees or penalties could significantly impact your savings.

UGMA and UTMA Accounts

Although not specifically designed for educational savings, UGMA and UTMA accounts can be used for this purpose. These custodial accounts permit annual contributions of up to $12,000 per beneficiary without being affected by the gift tax. Assets transferred to this type of account are considered an irrevocable gift to the minor. Assets are taxed at the minor’s income tax bracket. Once the beneficiary reaches the legal age, he or she assumes control.

Keep in mind it is possible that such an account could entitle your child to less financial aid. Also, once your child assumes control, the assets can be used for any purpose. If your objective is that the funds be strictly designated for a college education, a custodial account may not be right for you.

Financial Aid

There are numerous state and federal sources of financial assistance available to help with the expense of college. As you consider your options, keep in mind the importance of applying early. It can take some time to process an application and funds in each program are limited.

On the federal level, there are six major programs. Three of these offer financial assistance directly to the students, while the other three give funds directly to the college of attendance.

On the state level, programs vary, however most state assistance is only available to residents attending schools within that state. A few states offer aid to nonresidents who attend school in their state, and some states have reciprocity arrangements with other states.

Financial Aid options include the following:

• Pell Grants are awarded based solely on financial need.
• Stafford Student Loans offer low interest rates and deferred payment until after graduation.
• Parent Loans for Undergraduate Students are offered to parents of dependent undergraduate students. Payment begins within 60 days of receiving the full loan, with a repayment period of up to 10 years.
• Supplement Education Opportunity Grant provides additional grant money to students in need who have already been awarded financial assistance
• College Work-Study Program provides employment to students who have demonstrated financial need.
• Perkins Loans are administered by the school to qualifying students in need. Students pay no interest while in school, and there is a nine-month grace period after graduation for repayment. The repayment period is 10 years.

Other sources to consider:

• ROTC provides scholarships for recipients who must then serve up to eight years in the military.
• National Merit Scholarships are based on PSAT exam scores.
• Siemens Westinghouse Competition awards grants for research projects in science, mathematics or technology.

There are many different ways to plan for your child’s education. Depending on your needs, you might rely on a combination of the above options. If at all possible, a plan that allows you to contribute regularly without greatly sacrificing your own needs for the future should be included in your goal.

*The College Board, Trends in College Pricing, 2007

** If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan. 529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal. Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement. Please read the official statement carefully before investing.

This material is presented for informational purposes only. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor. Securities are offered through an affiliate, AXA Advisors, LLC. AXA Equitable and its affiliates do not provide legal or tax advice..