Five Great Ways to Save For College

The volatility of the stock market has not only raised fear among future retirees, it's also affected parents saving for their kids' college educations. With tuition costs rising through the roof, you'll need to save wisely if you're going to cover these costs.

Many moms and dads consider the act of paying for their children's college educations part of their parental obligations. Between the rising costs of raising a family, and the volatility of the stock market, this can be an increasingly tall order. Here are five tips to help:

Start saving early

This is the mantra of every financial pundit regarding retirement, and it's just as applicable for college savings. The sooner you start putting money away for your child's education, the sooner compound interest can grow your funds, and the smaller student loan you'll need. If the economy is slumping and the stock market is underperforming, keep your eye on the prize. Every market experiences turbulence and, if you buy during down periods, it will pay off handsomely when the market rebounds.

Take a look at 529s

The 529 college savings plan allows money saved for a higher education to accumulate tax-free, as long as the money is spent on a child's college education. When the program was first launched, each state had its own one. The offerings have now grown, with up to 92 separate state plans. Carefully scrutinize the fees; they could end up eating away a significant chunk of your investment.

Bonds for the conservative crowd

If the prospect of risking your child's college savings on the stock market is keeping you up at night, consider Education Savings Bonds. With this instrument, you're guaranteed a return, and you could also receive tax breaks based on your eligibility. The growth rate on bonds is rather low, however, considering the rising cost of college tuition. With bond returns of around 3.5 percent, you may have a great deal of trouble keeping up with tuition increases of 10 percent.

Tap your home equity

Many parents have tapped into their home equity to pay for college costs. Because home equity loans have relatively low rates and tax-deductible interest, this has been a popular option in the past. However, the recent slide in the housing market has cast some doubts on the wisdom of tapping your equity for amounts as large as college tuition. If you're going to use this option, make sure that you plan to stay in your home long enough to pay back the loan.

It's smart to start investing as early as possible for your child's college education, but review all your investment options before you begin. The market is full of choices, and many of them have pros and cons. Like parenting, your final decisions will be based partly on research and partly on instinct. While fate plays a large role in your final tally, the more homework you do upfront, the better your results will be in the end.