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Help! My child is only two years away from college and we haven't saved much. What should we do?

Your late start means you've missed most of the best opportunities to grow the money you have. With only two years until your child starts college, you'll need to refine the college selection process, accumulate enough of a down payment for the early college bills, and establish a savings plan for the later college years. Here are some constructive steps you can take.

First, help your child investigate schools that provide a good value. Some less expensive state universities and second-tier private colleges may offer better programs than their more expensive private counterparts. Think creatively. Your child could attend a nearby school and live at home for a year or two to save money on room and board. He or she could attend a community college for two years and then transfer to a private four-year college. Or, your child could consider cooperative education, where semesters of academic work alternate with semesters of paid work. If your finances are severely limited, your child might consider taking a year off before starting college.

Second, learn all you can about financial aid. Do a dry run through the federal government's financial aid application to determine whether your child is likely to qualify for financial aid, and, if so, for how much. For financial aid references, ask a librarian or your child's high school guidance counselor, or conduct a search on the Internet. When you've zeroed in on a few colleges, examine their financial aid statistics. For example, what percentage of students receive financial aid? What percentage of the average package consists of loans? What percentage of a student's financial need is generally met--100 percent? 75 percent? Does the college offer merit scholarships?

Third, start investigating potential scholarships. There are a number of websites where your child can type in his or her interests, abilities, and goals to obtain a list of relevant scholarships. However, outside scholarships generally make up only a small portion of a student's overall aid package, so it's very important that this search be made in addition to, not in place of, the quest for federal and college-sponsored financial aid.

Fourth, examine any current financial resources that you can draw on for the early college bills. Do you have savings accounts, stocks, mutual funds, or cash value life insurance? Can you pay a portion of the tuition bills from current income? Can you increase the family income by getting a second job or having a previously stay-at-home spouse return to the work force? If you're still short, you'll need to investigate a personal loan, a home equity loan, or the federally sponsored PLUS loan, which is tailored especially to parents. In other cases, you may need to tap your retirement accounts, though this is generally recommended only as a last resort.

Finally, you'll need to start earmarking a portion of your current income for college bills that won't come due until four or five years, when your child is a junior or senior in college. Because you'll need the money relatively soon, you should avoid high-risk investments. Instead, choose a low-risk, stable investment, such as a certificate of deposit that is timed to mature when you need it, or a money market mutual fund.