Now that you have an idea of how expensive a college education for your children can be, it's time to figure out a reasonable approach. After all, very few parents can ever expect to save the full cost of their children's college education, and that's okay because there are lots of options, some of which are listed below:

• For the first two years, your child could attend a local college. In fact, many students benefit from the discipline of attending college while living at home for those first two years.
• Many colleges offer merit scholarships that are awarded without regard to financial need.
• A variety of student loans and government-sponsored loans are available at reasonable interest rates.
• Programs like ROTC (reserve officers' training corps) allow your child to gain an education in return for a few years of military service after college.
• Your child can join the military after high school, and not only earn free college credits, but qualify for significant financial assistance when they choose to attend college.
• Your child can work part time to help defray costs.
• Your child can attend college part time while working full time. This takes longer, but it is certainly doable.

Before you can determine your best savings approach, it might be beneficial to understand how the college financial assistance programs work. If your child is very young, you can only estimate at this point since you don't really know what your true financial situation will be when your child reaches college age. If your child is in High School, then you can actually begin to be more precise in your planning and in estimating how much financial assistance your might expect to receive.

In general, colleges follow some basic rules in determining financial assistance. Parents are expected to apply to each college or university and provide lots of financial information, including your income, your debts, non-retirement assets for yourself and your child, and even your last tax return. Colleges then use fairly standardized formulas for determining how much you should pay, how much your student should pay, and how much will still be needed. Typically, after adjustments for taxes and all of the other factors, colleges expect students to contribute up to 70% of their income and 35% of their assets each year. Parents are expected to pay as much as 47% of their income (typically, about 20%) and 5.6% of their assets. The good news is that your contribution is a fixed amount and remains the same regardless of the cost of the college your child attends. Also, the amount is a family contribution amount and does not change based on the number of children attending college.

Some factors that can affect your contribution amount include:

• College savings. Carefully evaluate whether assets designated for college should be placed in your child's name or your name. While only 5.6% of your assets must be used for college, 35% of your child's assets must be used each year. Compare the tax savings generated from transferring income to your child with the possible reduction in financial aid.
• Assets. Your net worth, as defined by the financial aid system, includes your home, bank accounts, stocks, bonds, and mutual funds, but not retirement funds, insurance, or annuities. However, individual colleges may have different criteria for certain assets.
• Debts. Loans against assets, such as mortgages, home-equity loans, and margin loans, are deducted from your net worth, while consumer loans (credit cards, automobile, etc.) are not deducted.

When college costs exceed your required contribution, financial aid officers try to find aid to make up the difference, using grants, scholarships, work programs, and student loans.

For planning purposes, you should focus on what you expect to have in non-retirement savings or investment accounts, including those for your children, and college savings plans. If you want to estimate your expected family contribution, consider the calculator available at finaid.org. For those with very young children, we suggest that you use your current financial information compared to the cost of college today. If your student is much older, than you can use more precise figures.

Once you determine how much you can expect in financial assistance, then it is time to consider how you will begin to save to pay for the rest of the educational expenses.

Step 3 - Evaluate various savings plans