Planning early helps meet those college-year costs

With the Reagan administration advocating further reductions in federal aid to students, it is vital that parents develop a strategy for funding college costs as early as possible.

In planning for college costs, ''Parents should assume they won't get any federal money and be pleasantly surprised if they do,'' said Kenneth A. Kohl, director of financial aid at Georgetown University in Washington, D.C.

All federal education-aid programs will be funded at lower levels in the 1982 -83 academic year than this year, according to Department of Education spokesman Skee Smith. For example, under the terms of a congressional continuing resolution, funding of Supplemental Educational Opportunity Grants will decline 25 percent to $278.4 million.

And the fiscal 1983 federal budget due out Feb. 8 is expected to contain further reductions in educational aid, which will take effect in academic year 1983-84. Some programs, including Supplemental Educational Opportunity Grants and National Direct Student Loans, are rumored to be slated for elimination by the end of the next fiscal year.

Department of Education officials will not comment on details of their fiscal 1983 budget.

''Even if we must look at the most bleak (federal aid) projections, there still will be dollars available,'' notes Tally Wickstrom, vice-president for student assistance services at the College Board.

''I am concerned that gloom-and-doom messages will cause students not to explore opportunities that are there even in the most negative situations,'' she adds.

Still, competition for aid dollars will increase. Universities will be asked to provide more help and ''greater pressure is going to be felt on the family to pay more,'' Mr. Kohl says.

The first step in coping with such pressure is figuring out what college costs will be for your child. A chart accompanying this story shows what has happened to college costs in the past 10 years. For an idea of what educational costs will be by the time your eight-year-old enters the halls of ivy, take the 1982 cost figures as a base and use a cost inflation factor of ''10 to 15 percent a year,'' says Michael Cunningham, a partner with Laventhol &amp; Horwath, a certified public accounting firm. Of course, such predictions assume a continued high rate of inflation.

Once the likely college cost burden is clear, plans can be laid to accumulate the money. Establishing a savings plan is the most common recommendation. ''Set up a (savings) plan and stick to it,'' says Mr. Kohl. He is the author of ''Financing College Education,'' published by Harper &amp; Row Inc.

Financial advisers say a family can make its savings plan more efficient by putting the funds into a custodial account in the child's name. In this way the interest on the money is taxed at the child's lower tax rates. Under current tax law, each parent may give each child $10,000 every year. So up to $20,000 per child can be set aside.

Funds in the account can be invested in a money market mutual fund or in a fixed income investment like a bond. Brokers and bankers both can provide aid in establishing custodial accounts.

Two cautions: Colleges sometimes require a greater contribution from a child's savings account than from a parent's when determining financial assistance. Another caution: Once money is transferred to a child, it belongs to him. So upon reaching legal age, he could spend the money for some purpose other than college. Parents can get around this problem by putting the money they give a child into a trust. In addition to the cost of setting up a trust, ''you have to commit the principal for ten years,'' Mr. Cunningham says.

When the student reaches legal age, parents may make an interest-free loan to him. Unlike a trust, the loan can be called back at any time. The student can invest the loan proceeds and pay tax on the interest at a lower rate than the parents would pay.

If the parents do not have the money to make such a loan, it may pay to borrow funds and then lend them to the child.

Here is a simple example of how such a transaction can work. The parent borrows $1,000 at 18 percent intersest. The loan thus costs him $180 a year. But the parent gets a tax deduction for the interest. If the parent is in the 50 percent tax bracket, the actual cost of the loan is $90.

Meanwhile, the child invests the funds in a money market fund earning 12 percent, or $120.

At the end of the first year, the family's gain on the maneuver is the $120 the child earned in the money fund less the $90 the parents paid for them. Of course, the higher the yield the child earns and the less the parent pays for the loan, the better this scheme works. So families who can do so should consider taking out interest-free loans from profit-sharing plans and credit unions, accountants say.

To have protection under court cases allowing such loans, the student must be of a legal age to enter into contracts. And parent and student must execute a legally enforceable note saying the loan is payable on demand.

Parents should remember that their student could take loan proceeds and make purchases that have noting to do with education.

Once college bills begin flowing in, it may make sense to give a child a gift of property whose value has climbed.

The strategy is for the child to sell the appreciated property. His gain on the sale would be the same as the parents would have posted on the transaction. But being in a lower tax bracket, the child pays less tax on the sale.

''Never do this'' with property which has gone down in value, Cunningham says. The parent would ''be in a better postion to use the loss himself'' to reduce his taxes.
