Sending kids to college? Better start saving now!

State funding for higher education has not kept pace with either inflation or increasing college enrollment. Universities and colleges are passing costs on to parents through higher tuition and fees.

In 1996, the Texas Legislature created the Texas Tomorrow Fund. The program allowed parents to lock in the cost of future required fees and college tuition. The program allowed people to buy into the fund and be guaranteed the current costs for higher education programs. The benefits of the plan were protected by a constitutional guarantee - if there was a shortfall in the plan, that shortfall would be covered by the state. Payments into the plan were then invested and the investment earnings were used to cover tuition costs and fees of those enrolled in the plan.

The fund closed to new enrollments in 2003 after the fund's board determined its actuarial soundness could be adversely affected by rising tuition rates.

Now, Texans can still get a jump on college costs by taking advantage of another prepaid tuition plan created by legislation from the 80th Texas Legislature - the Texas Tomorrow Fund II. Families have an option of locking in today's rates for tuition and required fees for future higher education needs. Parents may purchase "units," with each unit valued at 1 percent of one year's tuition and required fees. If $1,000 worth of units were purchased today and in 10 years the investment is worth $1,100, the entire amount is available to be exchanged for tuition.

Funds from the Texas Tomorrow Fund II may be used at both public and private colleges and universities. This program will be open to enrollment on Sept. 1, 2008. Those who don't want to wait until 2008 to commit savings for college can participate in a state-sponsored Tomorrow's College Investment Plan. More information about both programs is available on the State Comptroller's Web site.

This plan provides a tax-advantaged investment vehicle with a choice of nearly two-dozen investment portfolios. The earnings are tax-free, withdrawal for qualified education expenses are tax-free and funds can be reallocated annually. These funds can be used for tuition and fees, room and board and textbooks, supplies and equipment that are required - including computers.

Parents can make contributions to their child's account, as can grandparents, relatives or friends. Or individuals can open an account for themselves, if college is in their future plans. Opening an account requires a $25 initial investment with subsequent investments of $25 or more. Contributions to the Tomorrow's College Investment Plan allow participants to invest more than most other college savings plans, as contributions from all parties can reach a maximum of $257,460. Once that maximum is reached, the investment can still continue to grow tax-free.

There are a number of other benefits to the program. If for some reason the beneficiary of the account chooses not to go to college, the account can be transferred to another family member or even the donor. If the beneficiary is awarded a college scholarship, an amount from the account that matches the scholarship amount can be returned to the contributors without a penalty being imposed. And other than room and board, the program covers all qualified higher education expenditures whether the student attends classes part-time or full-time. When college expenses arise, the beneficiary simply fills out a distribution form and the money can be sent to the donor, the student, another person who will pay the expense or sent directly to the institution.

Just remember, the earlier you start saving for your child's college education, the less money you are likely to have to invest in a savings plan.

Tuition and fees have tripled at Texas public colleges and universities since the original Texas Tomorrow Fund was created. Preparing for a child's future through a prepaid tuition plan is a smart step that can save you money.