After your home, the largest expenditure you ever make in your life may be for a college education. Costs at some colleges and universities now top $30,000 a year. On the other hand, the value of the education can be many times that amount; a college degree adds hundreds of thousands of dollars to the lifetime earning capacity of the average high-school student.

There are numerous programs to provide funds for college education; however, many of these programs disqualify students whose family incomes are too high. It obviously is no longer possible to pay for an education by waiting on tables — the costs are just too great. The alternative is to borrow the money.

A high-school counselor or the student aid office at the college of your choice can advise you about the kinds of student loans that are available and the requirements for obtaining them — as well as other sources of funding that should be explored (for example, the ROTC program provides scholarships in return for a military service commitment).

Types of student loans
Two basic types of student loans are available: loans to parents that must be repaid like any other installment loans, and direct loans, which are repaid by the student after graduation. While the latter plan may sound preferable, remember that it means the new graduate will begin his or her professional life saddled with an extremely large debt — one that may not be paid off until middle age.

The federal government provides funding and/or guarantees for a number of student loan programs. Local banks administer the loans, and the interest is paid by the government during the time the student is enrolled in school. You can obtain information about these loans from the U.S. Department of Education, the college, or from your banker.

Some private institutions and foundations also make loans available for education. The college counselor can provide you with details of these programs.

One way to avoid the high costs of college loans is to begin planning early. If you opened a bank account for your child on his or her first birthday and deposited $5 a week until the child's 18th birthday, you would accumulate about $8,500, depending on your tax bracket.

If you give an income-producing gift to a child under 14 years old, the earnings will be taxed at your marginal rate. But series EE Savings Bonds, which accumulate interest that is not taxed until the bonds are cashed in, may be a good alternative. After the child turns 14, the interest would be taxed at his or her marginal rate, which probably is less than yours. A savings bond that is purchased when the child is under 14 but not cashed in until after the 14th birthday would be taxed at the child's rate, not yours.

There is another alternative you should consider for financing an education. If you own your home and have accumulated substantial equity in it, this may be the best reason you will find for taking a second mortgage or to refinance the first. If you have owned your home for 10 years or more, chances are the equity will be enough to cover a substantial part of the costs. You can borrow the funds, contribute them to your child as a gift or simply pay the college expenses directly. Interest on home loans used to finance education (as well as medical expenses) is tax-deductible. Talk to your account or tax attorney for details.