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Strategies for financing higher education need updating

SAN FRANCISCO — With the credit crunch crimping the student loan market and financial market upheaval crunching investments in college savings plans, what's a parent to do? That depends somewhat on when your child will need those funds.

If you've got a long time horizon, some say investing in the tax-advantaged college-savings tools known as 529 plans still makes sense. Investors contribute after-tax dollars; investment gains are tax-free if the money is used for qualified education expenses. "The long-term appeal of 529 plans, despite all the painful losses in recent months, is still very much intact," said Marta Norton, senior mutual fund analyst with investment research firm Morningstar Inc., in Chicago. Search for "529 plans" on Morningstar.com to see the firm's take on the five best and worst plans. Note that, with some exceptions, 529 plan investors can generally change their investment options only once a year.

Overall, the investment portfolios offered through all 529 plans tracked by Morningstar were down 6.09 percent on average for the year ending Aug. 31, while they were up 6.06 percent over five years, annualized.

No matter how you do it, saving something is getting more important as the credit crunch limits loan availability. Fewer lenders are participating in the federal student-loan program, and about 33 lenders have stopped offering new private loans, said Mark Kantrowitz, publisher of FinAid.org, a financial aid information site. To improve your chances, consider the following strategies:

Apply to many schools. This increases the number of financial aid offers you receive. "We recommend kids apply to 10 schools, so they get accepted to three or four schools," said Dave Kenney, chief executive officer of CollegeZapps, a Littleton, Colo.-based provider of college application tools.

Don't rule out private colleges. Their tuition costs are steep, but these schools often have more ability than state schools to offer scholarships or tap endowment funds to help students, Kenney said.

Talk to family members. Grandparents are often willing to help with a gift or loan. Set up a savings plan and ask for matching contributions, Loewe said.

Talk to the financial aid office. School financial aid officers have a good handle on available grants, scholarships and loans. Also, ask your student's high school about local scholarships, and your employer, too.

Seek federal loans first. They're more available and generally cheaper. Meanwhile, improve parents' and students' credit scores by paying down debt to help ensure you're eligible for the lowest rates if you need a private loan with a co-signer.

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