SEVERAL PLANS OFFER SAVINGS FOR COLLEGE

College costs are generally outpacing the increase in consumer prices, but the prospect of paying for a degree isn't as bleak as it was in the early 1990s.

According to a Consumer Reports survey, the rise in tuition has dropped to 4.5 percent, about half what it was a few years ago.

So what does it mean for you, the parent of a toddler you intend to see graduate from college?

For one thing, it means you need to get an early start on a college savings plan and the earlier, the better.

A student entering an in-state public university in the fall can expect to pay an average of $6,750 for a year's tuition along with room and board. An Ivy-League school will cost almost four times that. At the current rate of inflation, by the time a newborn reaches college age, tuition will have risen to $26,750 a year for a state university and almost $62,000 for an Ivy-League school. If you have a pre-teen you intend to send to college, plan on saving the equivalent of another monthly car payment and you'll be able to finance their education.

Series EE bonds

How you save depends a great deal on when you start. Series EE bonds are a popular saving tool for many people. The interest accrued is not taxable if the money is used for educational purposes. The purchase of a bond also gives the buyer something tangible to pass along as a gift.

"Series EE bonds are guaranteed by the government and that makes a lot of people feel safe," said Pat Kaempfer, a financial service representative for Union Planters.

"We see a lot of grandparents buy bonds," she said. They are attractive also because there is no paper trail and record keeping to worry about.

Money earmarked for education will do best in a tax-free or tax-deferred account of some type.

In 1996 federal tax law changes introduced a variety of savings plans to benefit educational money. Programs that combine state and federal tax benefits are available in more than 20 states.

College savings plans

College savings plans may be opened for a child, grandchild or other young person with no maximum annual contribution.

Most programs let the investor defer federal taxes on investment earnings until the money is withdrawn to pay for higher education expenses and then the withdrawals are taxed at the student's rate rather than the depositors. Some states waive taxes altogether as long as the money is used to finance continued education.

Education IRAs

Education IRAs let people with a household income of $160,000 or less contribute up to $500 a year in after-tax income per child to an account earmarked for that child's after-high school educational expenses. Prepaid tuition plans guarantee the invested funds will keep pace with tuition inflation and are currently being introduced in several states.

MO$T accounts

State-sponsored tuition-savings plans are another appealing option. The majority of these plans use an age-based asset allocation model that invests in equities when a child is young and gradually shifts to fixed-income investments as the child ages.

Missouri has a new, tax-favored program thanks to the efforts of State Treasurer Bob Holden. The Missouri Saving for Tuition Program (MO$T) offers Missouri families a smart, effective way to save for their children's future education.

When considering savings plans, be realistic in what you can afford. With the MO$T plan, you can start with as little as $25 payable by check or through an automatic contribution plan. If your employer offers a payroll deduction feature, you can start the account with a $15 deduction per two-week pay period.

Money accumulated in the MO$T account can be used to pay for all college expenses, not only in Missouri, but across the country in institutions of higher learning, including trade and graduate schools and even some schools abroad.

Saving at the rate of $150 a month, if inflation costs remain near today's rate of 5 percent, would yield about enough in 18 years to pay the average tuition, room and board at a state university. The manner in which you choose to invest your money, of course, will determine the yield.

State programs such as MO$T offer aggressive investment portfolios blending money markets, bonds and stock mutual funds.

Buying stock in the work place and earmarking the money for education is easy for some parents to handle. The cost of the stock is usually deducted directly from an employee's paycheck which most employees think is a benefit. Some companies also have matching dollars savings programs as long as the money is used for educational purposes.

People are starting to listen to investors and are determining that long-term investing is what gets you where you need to be, said Lyle Davis, financial consultant for A.G. Edwards and Sons.

"One of the best ways to go is a custodial account," said Davis. Checks are written to the brokerage firm for the account. The money is then invested in mutual funds. If a child is fortunate enough to obtain scholarship money to offset tuition costs, the custodial money may be used for other expenses without penalty.

For the more conservative investor, a Guaranteed Option program that will give a steady predictable return with low-risk factors might be more appealing.

Financial aid

Financial aid is awarded by colleges and universities at the rate of $60 billion annually. Complex formulas that weigh a family's earnings and savings are used to determine what proportion of the total college cost the family can be expected to pay from its own resources.

Scholarships

A variety of local, state and national scholarships will also help defray tuition costs for a number of students, but competition is high.

Education after high school is one of the best ways to ensure a promising future. Funding that education is something that can be achieved with the right plan.

FIGURING FOR THE FUTURE

A family with three children ages 8, 5 and 1 would have to consider the following if they intended to send all three children to an in-state public university:

Total tuition cost

8-year-old $65,737

5-year-old $73,945

1-year-old $86,505

Total for all three $226,187

Lump sum investment today to reach amount

8-year-old $21,990

5-year-old $18,585

1-year-old $14,850

Total for all three $55,425

Savings needed per month

8-year-old $251

5-year-old $184

1-year-old $130

Total for all three $565

COST OF COLLEGE

Estimate of the average cost of tuition along with room and board for one year:

In-state public university

Today: $6,750

18 years from now: $26,750

Ivy-League school

Today: $27,000

18 years from now: $62,000