Parents cutting back on college-savings accounts

In the current economic downturn, consumers are cutting back on non-essential extravagances. However, is it smart to cut the college fund? According to a Gallup survey, 47 percent of parents who have previously been saving for their kid's education are putting less cash away ... or not saving at all.

It's important to prepare for the future and start saving for education, especially during an economic crisis. The Wall Street journal reports on the rising costs of education for the 2008 to 2009 school year. "The average cost of attending a four-year public school for in-state residents--including tuition and room and board--rose 5.7 percent to $14,333, according to the College Board. The cost was up 5.6 percent to $34,132 for a private university.

Should you invest in a college-savings plan? A 529 is an account that works like a Roth IRA. However, these plans are somewhat complex. They're governed by individual states, and each state in the U.S. deals with the benefits and tax breaks of a Roth IRA differently.

Financial Research, a Boston Consulting firm adds, "Meanwhile, the value of 529 college-savings accounts sank 21 percent last year."

Using 529s can be very confusing, and only around 5 percent of middle-class families use these accounts, according to Treasury Secretary Timothy F. Geithner. The 529 is more common with high-income filers.

“The combination of differing rules and a cacophony of confusing investment options have made the plans tough to navigate and can discourage their use by less sophisticated savers" says Joseph Hurley, founder of SavingforCollege.com and author of "The Best Way to Save for College: A Complete Guide to 529 Plans."

So how can one make 529's less confusing? To start, pick up a copy of Hurley's "Save for College" book. Also, pay attention to your state's rate compared to others. Clark Howard shows different state rates here.

Also, check out college calculators to see how much you need to save, and how much financial aid you will be able to receive.

Relief for those struggling with student loans

Many people who decide to pursue higher education end up paying the price for years. Without scholarships or other assistance, just one year at a private institution can cost upwards of $50,000. The only option many students have is to take out large loans.

Effective July 1, however, a new plan will allow lower income graduates to make smaller monthly payments.

This relief comes in addition to a plan the government already offers to forgive some of the debt of students who pursue public service career paths. After a graduate makes 120 payments, the remainder of the loan is forgiven. The only loans that are eligible for forgiveness, however, are the Federal Direct Stafford Loan, the PLUS loan, the graduate PLUS, or the Federal Direct Consolidation loan.

"Typically, it is projected that a borrower who performs public service under this program will repay only about one-fourth to one-half as much money as a borrower who does not," Peter Mazareas, vice chairman of the College Savings Foundation, a Washington-based advocacy association, says to The Boston Globe.

Some loan forgiveness programs are also based on the state in which the graduate lives, and Massachusetts, for example, offers additional programs. For graduates who pursue professions related to teaching young children or other forms of childcare, there are forgiveness opportunities available.

In addition, the federal government has discussed increasing its involvement in helping graduates handle the burden of student loan debt. Loan forgiveness or assistance could become available to those pursuing a wider range of professions. For more information on Massachusetts loan forgiveness, click here.

--Bridget O'Sullivan