If you have children in grade school, chances are you'll end up paying as much as $12,000 a year to send them to a private college or university and as much as $7,000 for a state university (tuition, room and board).

If you try to start up a savings account to help defray future college costs, you'll have to pay tax on the income it earns. But, by giving the child the money now for his or her own savings accounts, you can avoid paying the tax.

Each child can earn up to $1,000 a year from savings or dividend income without having to pay a tax. By giving a child say, $12,500 and investing it in a certificate that pays 8 percent a year, the child would receive $1,000 a year tax free.

All this money would accumulate over the years and could be used by the child to pay for college costs. You've got to be careful about your responsibility to support the child. In one or two states courts have ruled that affluent parents have the responsibility of sending their child to college. But, in states where a child becomes a legal adult at age 18, the parents no longer have the responsibility of paying for the college costs.

If you have a relatively small amount of money to put into a savings account, your best bet is to give the money to the child under the rules spelled out in the Uniform Gift to Minors Act.

Most banks and savings institutions have forms you fill out so you can set up a custodian account for the child. Under the gift tax laws, a parent can give a child up to $3,000 a year tax-free and both parents can give a combined $6,000 a year.

If the money is primarily coming from one spouse, then the other spouse should be set up at the custodian of the money until the child becomes a legal adult. It's important to separate the custodial control of the funds from the donor.

Parents who are able to give larger amounts of money to a child might consider setting up a "reversionary" or "Clifford Trust." In this trust, you make a certain amount of money, stocks or other valuable assets available to the child for a minimum of 10 years.

The child gets the income from the trust which is put into the future college fund. If the income is less than $1,000 a year, no tax is paid by the child. If the income is more, then the child has to pay a tax at a fraction of the rate the parents would have paid.

After 10 years or more, the parents get their initial investment back and the child has all the accumulated income to use for paying the college bills.

Because banks and savings institutions require a minimum fee of several hundred dollars a year to manage a reversionary trust, they're not really worth the trouble unless you have a fairly sizeable amount of money or property to temporarily give to the child.

And, remember, income from the trust cannot be used by parents for

There's a good, step-by-step book which explains reversionary trust in more detail. It's called "The Education Trust," by Robert F. Moller. You can get a copy by sending $10.95 to: R.F.M., Inc., Box 7472, Madison, Wis. 53707.

Q. Over the past few years, I've watched the payoff period for automobile loans go from three years to four years and now to five years. It sounds ridiculous to make payments on a car for five years when the car may be in bad shape in much less time. What are the pros and cons of long-term loans for cars?

A. First off, very few banks or other lending institutions will stretch automobile loans to five years (60 months).

And, those that do, often limit them to the high-priced luxury cars such as Mercedes Benz, Porsche, Cadillac, Lincoln and Rolls-Royce.

The main idea, of course, is to bring down those monthly payments. For example, if you borrow $10,000 on a 60 month loan, your momthly payments would only come to around $220 -- fraction of the amount you'd have to pay on much shorter loan.

People who are able to itemize tax deductions can deduct the interest charges on these long-term auto loans, which further lower the effective monthly payments.

One of the big problems with lonterm loans is the fact that the owner may have to trade in a car well before the loan is paid off. If the owner doesn't get a sufficient trade-in price for the old car, he'll owe more than he gets for the car. This means he would have to dip into savings to make up the difference.

You also pay considerably more in overall interest charges for a longterm loan and the dealer may ask for a larger down payment.