FINANCIAL FOCUS: CONSIDER SOME SMART SAVINGS STRATEGIES FOR COLLEGE STUDENTS

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

For some time now, we've enjoyed low inflation, but it hasn't disappeared from the scene -- especially on college campuses. With annual price increases of 5 percent or more for the past several years, the cost of a college education has shot way up -- and it's still climbing.

In fact, if college costs continue to climb at their recent pace, in 18 years you can expect to pay about $72,000 for four years at a public school, and $185,000 for a private school.

How can you meet these costs? Here are some suggestions:

Set realistic goals. Try to estimate how much money you'll need for college. Then, calculate the annual rate of return you'll need to achieve on your savings and investments in order to reach your goal. But don't overestimate you expenses -- you don't have to come up with the entire amount required for college. Generally speaking, if you can save at least one-third of the total college costs, you and your child should be able to make up the rest through loans or campus jobs.

Save early and save often. Consider starting a disciplined investment plan when your child is still a baby. By giving yourself 18 years to save, you can put away relatively small sums each month and still meet your objectives.

Save in your own name. You may be tempted to put college savings in your children's names to take advantage of their lower tax rates, but these tax benefits could be overshadowed by the potential loss of financial aid. In calculating financial aid packages, colleges usually expect children to spend one-third of their own savings for college costs each year. However, most schools require parents to contribute only 6 percent of their savings.

Invest for growth. Far too many families save for college by investing entirely in short-term interest-bearing accounts, such as savings accounts, CDs and money-market funds. Although these investments might seem safe, they will likely lose ground to inflation over time. If you really want your money to grow, build a well-diversified portfolio that includes long-term and zero coupon bonds as well as individual stocks and stock mutual funds. Long-term and zero coupon bonds pay better rates than short-term savings and guarantee your principal if held to maturity. Stocks historically have shown a much higher rate of return than any other investment.

Explore government-backed savings programs. Recent tax law changes have opened up some new avenues for college savings. You can now contribute to an education IRA, which allows you to make tax-free withdrawals for college. Other government programs include the Hope Scholarship, which offers tax credits of up to $1,500 a year for the first two years of college, and the Lifetime Learning Credit, which can amount to $1,000 a year. (You can't claim both the Hope Scholarship and the Lifetime Credit in the same year.)

Be prepared ...

College costs can be daunting, but by taking the proper steps, you will be financially prepared for the "big day" -- when those first bills come due.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.