It’s never too early to start thinking about how you will pay for your children’s college education. The process can be complex, but we break it down to help you get a handle on planning for college costs.

Set Goals

As parents, we have goals and dreams for our children. We want our kids to grow up safe, happy and loved, and we want to see them pursue their dreams, passions and interests into adulthood.

These are all great goals, but they aren’t very specific. And to reach a goal, you need to make it specific. This is particularly true when it comes to college planning.

While the world seems to assume that parents will help pay for a child’s college education, 2012 statistics from Sallie Mae show that students pay an average of 30 percent of their college bills. Many students pay much more than that or rely solely on scholarships to get through school.

If you’re good with money, chances are you can be ready to help pay for part or all of your child’s college education, but this isn’t a requirement for good parenting. If you have several children or a lower-income job, you may be unable to save much to help each child with college. And that’s OK.

The point here is that you need to decide what your family is capable of, based on your circumstances, and set goals based on that. Here are some examples of college planning goals:

  • My husband and I don’t plan to have more than a couple of kids. Although we don’t make a lot of money, we make enough to save for college. Our goal is to be able to pay outright for four years of in-state tuition for our daughter and any future children. If any of our kids decide to go to an out-of-state or a private school, she’ll have access to whatever funds we’ve saved, and we’ll help her apply for grants, scholarships and loans to cover the balance.
  • The parents of one of my childhood friends paid for all three of their children to get a private college education and also helped with graduate school. They are fairly well-off financially, but they spent years saving to achieve this high goal. They also took out some Parent PLUS loans to make it happen.
  • A lower-income family with several children might opt to save for retirement rather than college (a wise idea). Instead of college savings, this family might focus on preparing their children to apply for scholarships by focusing on academic or perhaps athletic or musical performance.

In all of these scenarios, the parents set goals based on their situations. So take into consideration your family’s financial situation, your other financial goals, and your aspirations for your child in order to set specific, attainable college planning goals.

Start Saving Early

Once you know what your goals are – whether it’s to save a little or a lot – start saving. The rule of compound interest is that the earlier you save, the less you’ll need to save to reach your financial goals.

For instance, if your goal is to save $150,000 for your child’s college education, you would need to save about $5,780 per year ($481 per month) for 18 years (based on an annual return of 5 percent). If you wait until your child is 10 to begin saving, you’ll need to save $9,630 per year ($802 per month).

Clearly, the earlier you begin saving, the better. But it’s never too late to start.

Your best bet, most likely, is to open a 529 account. These state-sponsored plans may give you some state tax breaks, and they grow free from state and federal taxes. This means that you aren’t losing money to taxes every year, giving these accounts more earning power.

These plans don’t have any annual contribution limits. But you don’t want to put more than you need into them because the money can only be used to pay for qualified educational expenses.

Be sure that you understand exactly what you’re getting and research 529 plans from different states before investing. You’re not required to get a 529 through your home state, though investing in your own state’s plan may save you money on income taxes.

And while you’re thinking of saving for college, try to give your child some incentive to save as well. It’s never too early for children to begin putting part of their lemonade stand or part-time job earnings toward a college account.

Prepare for Scholarships

It’s also never too early to begin thinking about scholarships, even if your child is too young to apply for them. While I don’t advocate pushing any child into a mold he or she doesn’t fit, it’s important to encourage the highest possible academic performance from each child.

Making good grades and taking more difficult classes often translates into more and better scholarship opportunities.

Another way to prepare for scholarships is to get a child involved in a variety of organizations and activities. Again, play to your child’s interests. But many scholarship committees (and college admissions committees) like to see well-rounded students who are plugged into their communities through work, volunteerism, and activities.

Apply for Scholarships

You may think that students can’t start applying for scholarships until their senior year, but this isn’t always the case. In fact, some scholarship programs and many essay-based contests start accepting applications as early as middle school.

Many advisors will tell students to apply for as many scholarships as they can find. Often, this is a good use of time. Even $500 scholarships here and there can help offset educational expenses.

But here’s something to consider: with a summer job, students make guaranteed money that could go toward school. When applying for scholarships, they aren’t guaranteed returns.

So when you’re sorting through the thousands of scholarships available, try to weed out those that are likely to be a waste of time, such as scholarships for which your child isn’t a great fit or those that require lots of work for a comparatively small scholarship.

Then, help your child balance his or her time between applying for scholarships and getting real-world, guaranteed-pay job experience, especially during the two or three summers before college enrollment.

Compare Costs Carefully

One crucial part of your planning is to be aware of the costs and benefits of the schooling options. During the 2012-13 school year, a public two-year college cost about $3,131 per year. Public four-year in-state tuition ran about $8,655, and out-of-state tuition was $21,706. Private nonprofit schools cost an average of $29,056, and for-profit private schools cost $15,172 per year. (Information from College Board.)

These are the base prices of education at these types of schools. But in fact, some private schools can end up being cheaper than in-state schools because they sometimes offer better scholarships, especially to high-achieving, high-needs students.

So when you’re comparing college options, it’s important to get a real idea of the kinds of aid you would qualify for at a particular school. This tool from College Cost and this one from the Consumer Financial Protection Bureau can help you more accurately predict the actual costs for specific schools.

Unfortunately, you won’t know exactly what aid package a school will offer until you apply. So it’s best to apply to a mix of schools – public, private, in-state, and out-of-state. (Applying early in your student’s senior year may help you avoid some of the hefty application fees.)

Then, you can compare actual costs for your family once you talk with financial aid officers at each potential school.

One other thing to keep in mind: the degree programs offered by various schools on your student’s list. An Ivy League education may not be all it’s cracked up to be, but students certainly need to choose a school with a reputable program in their chosen fields.

So as you’re comparing colleges, be sure to also talk with specific departments – even professors – and find out about the college’s job placement program, potential income in that particular field, and other details that could affect your child’s final choice.

While you’re at it, be sure to compare various living situations. Living at home may not be appealing for most students, but it can be a great way to cut college costs, especially when room and board can run from $5,000 to $10,000 a year.

Another option may be to live off-campus in a cheap apartment. Just be sure to stock up on Ramen noodles.

Work During School

Working your way through school doesn’t mean what it used to. Twenty years ago, reasonable public school costs meant that a college student might be able to work part-time and pay for school as she went. But this isn’t usually possible today.

Still, working during school can help students cover basic expenses – transportation, insurance, books, food, rent, etc. – so that they don’t have to take out bigger student loans. Students who choose the right school may be able to pay for a big portion of tuition with a part-time job.

Some research shows that students who work 10-15 hours per week, especially at on-campus jobs, are more likely to graduate with a degree. And working during college can provide students with essential professional and hands-on skills that will make the search for a post-college job easier.

If your child hopes to pay some of his or her tuition by working during college, ask the college about a payment plan. Many schools let you pay for tuition throughout the year, in monthly installments.

Minimize Debt

Student debt is the talk of the day, and it’s no wonder. Statistics on the American Student Assistance website note that 60 percent of college students borrow money for school. The average student loan balance for all age groups in 2012 was $24,300, with 25 percent of borrowers owing more than $28,000.

Clearly, student debt is a huge issue, and you’ll want to consider it when planning for college.

The goal for every college student and family should be to minimize student loan debt. Proper planning and some of the tactics listed above can help you do this. Other options include parents paying for some tuition costs on a payment plan and students delaying school for a year to save money.

If you need or your child needs to incur some debt for college, be sure that the amount is justified by your child’s likely income from a future career. In other words, don’t put an elementary education major in $100,000 of debt for a $40,000 career.

Also, be sure you exhaust your federal debt options before moving on to private loans. Though federal student loan interest rates are still in question as of today, the rates on federal loans will likely always be lower than rates on private loans.

Federally backed student loans also have more repayment options, which alleviate some of the burden of student loan payments in graduates’ early, low-paying working years.

If you absolutely must take out private loans to fund part of a student’s education, do so with your eyes open. Shop around and understand all the loan terms before signing.

And while you’re at it, be sure you walk your child through every step of the lending process, don’t just fill out the paperwork on his or her behalf.

I, for one, didn’t have enough information about student loans – and what they’d cost me – going into college. If I had known then what I know now, I may have made wiser college choices.

So Many Choices

Clearly, planning for college costs is complex. It’s a good idea to meet with a financial planner, whether you’re early or late in the planning process.

But remember: Start with concrete goals and take the college planning process one step at a time. Get those basics down, and you’ll be well on your way to a solid financial plan to get your child(ren) through college!