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Write out plan for paying for college

What's the hardest part about the college financing process? Is it finding the money to save in a 529 plan? Filling out the dreaded FAFSA financial aid form? Qualifying for a student loan?...

What's the hardest part about the college financing process? Is it finding the money to save in a 529 plan? Filling out the dreaded FAFSA financial aid form? Qualifying for a student loan?

Certified financial planner and college planning specialist Lee Hyatt says that for most of his clients, the toughest part is agreeing with their spouses about how much to pony up for college costs.

"I've had parents in my office that totally disagree," said Hyatt, a certified financial planner and founder of College Planning Resources in St. Louis Park, Minn. And if they aren't on the same page, that makes it pretty tough for Hyatt to help them plan for the price tag.

But discussing how to pay for college is more critical than ever now, given the recession, the negative performance of many college savings plans in 2008, tougher credit standards, lower home values and steep tuition increases.

Hyatt has observed that parents tend to want to provide for their children what they received from their mom and dad. But everyone's different. My husband and I, for example, both fortunate to graduate without student loans, think it's important for our kids to pay for at least part of their college education. That way they're less likely to skip class when the bar down the street has $1 burger night.

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To help families who haven't discussed their college financing opinions, Hyatt created the college commitment letter, a document that clearly spells out the parents' financial commitment to college and expectations for the student. His son Alex, a freshman at the University of Minnesota's Carlson School of Management, was the guinea pig for the process. A do-it-yourself version is available at www.collegeplanningresourcesmn.com/CCL.html .

The letters can be as unique as families, but all of them lay out financial expectations for the parents and the student. Some families pledge a certain dollar amount toward school, usually adjusted for inflation. Other families, Hyatt's included, agree to the equivalent of room, board and tuition at a state university such as the University of Minnesota. If his son had decided to attend a private school, he would have had to make up the difference using loans, scholarships, savings or part-time work. So Alex focused his attention on the University of Minnesota and the University of Wisconsin.

For a student's contribution, some parents want their kid to contribute a certain dollar amount each year and others make their student responsible for a particular expense. Hyatt's son pays for his own books, for example.

Most parents also tie academic performance to the money. All the ifs, ands or buts you can think of should be laid out in the letter.

Whether you write a letter or have a family heart-to-heart discussion, it's a good idea to address college costs by the middle of sophomore year. No one wants to disappoint their child, and too many parents put retirement on the line or go deep into debt to pay for education. Spelling out your mutual expectations long before applying to college can reduce headaches, tears and years of debilitating student-loan debt.

Make sure whatever is agreed upon is doable. Hyatt tells parents to err on the low side and to hand over more dough later if it turns out they can afford it. "No child has ever complained that their parents gave them more money than they said they would."

In this economy, more parents may find themselves with less money for college than they ever imagined. A Fidelity survey conducted in October, before the economy and markets really took a turn for the worse, found that parents are projected to pay for only 21 percent of their children's college education, a 3-point drop over last year. One-third of parents have decreased the amount of money they're saving for college or stopped saving altogether because of the economy.

Nearly three-quarters plan to reduce the burden of college costs using alternative strategies such as sending Junior to a cheaper school, having their child work or live at home, or pushing for early graduation. If you can't afford what you said you could in your letter, have a heart-to-heart talk with your teen followed by a brainstorming session about paying for school.

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Chances are, they'll be more understanding than you think.

Kara McGuire writes about personal finance for McClatchy Newspapers. Write to her at kara@startribune.com .

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