Forget Yale -- Go State

Phil Dyer, a financial adviser in Timonium, says students should keep in mind that they will win merit aid more easily from less-popular schools. "Some second-tier schools want people who can pay something, so they give you some aid just to get you in the door," he says. "And you can still get a very good education."

Tax Breaks

Once a child is enrolled, families should be sure to use all the education tax breaks for which they qualify. The Hope Scholarship credit of up to $1,650 for each student and the Lifetime Learning credit of up to $2,000 for each student are available to single filers with income of less than $55,000 and joint filers with income of less than $110,000. A tax deduction of up to $4,000 on tuition costs is available to single filers with income of less than $80,000 and joint filers with income of less than $160,000. But there are complicated restrictions limiting how these breaks can be used. For more information, check with the IRS at http://www.irs.gov/.

If a family starts saving late -- when a child reaches junior high school, for example -- then it will have to make it up with extra-large contributions if it can. If it can't, though avoiding debt should be a priority, borrowing may be unavoidable.

Such families can consider subsidized or unsubsidized federal or private loans. Federal programs include the Stafford and Perkins loans for students, and the PLUS loans for parents of dependent children. In dire cases, financial planners say, parents could consider refinancing their home or taking out a home equity line of credit -- they can get a tax break on the interest on a line of credit up to $100,000.

A fee-only financial planner who charges by the hour may be able to show parents how to reduce the income the government uses to calculate a family's expected contribution, and therefore the amount needed to borrow. The year's income that counts is the calendar year preceding the fall the student will enter college. For students starting in September 2008, that would mean the 2007 tax year.

Here's one strategy to cut income: If parents have not each put $4,000 into an IRA for 2006, they have until April 15 to do so, for a total reduction of $8,000 to their 2007 income. They can also each deposit $4,000 for 2007, too, lopping another $8,000 from their income for the year. This can cut income, for college-funding purposes, by $16,000.

While paying a financial adviser for an hour or two to help fathom the tax code might make sense, government officials advise families not to pay anyone to help file the federal aid form. That's free and can be done online.

Making students borrow a reasonable amount of money can make sense because they may qualify for a better rate than their parents. And it might make them appreciate school more.

"It can help make the student more responsible," says John Vyge of Hillebrand Financial Planning in Dulles. "And it's just unrealistic for most middle-income people to think they can pay for everything."