Budgeting: Tackling That Bill in Eight Simple Steps

1. Figure out the student's total cost of attendance by adding up tuition, fees, room, board, travel, books, and extras. Colleges are required by law to provide you with a total COA estimate. But if they don't, add about $4,000 to the total tuition, fees, room, and board.

Don't jump out the window.

2. Subtract any grants, scholarships, or other free money to calculate your family's out-of-pocket costs.

Don't jump out the window.

3. Subtract another $4,000 for child labor. Most college financial aid officers recommend and even expect students to work over the summer and about 10 hours a week during the semester. They suggest having the student bear all financial responsibility for books and all personal expenses, which typically adds up to about $4,000 a year.

4. Subtract an additional $3,500 to $5,500 for the student's debt contribution. Most advisers say it's not unreasonable to ask students to take on a limited amount of debt. A freshman can borrow a maximum of $3,500 through the federal Stafford program. Upperclassmen can borrow $5,500 a year.

The new total is the parental contribution.

Don't jump out of the window.

5. Divide the remaining total cost into thirds.

6. If you have any nonretirement savings, try to pay at least one third of the cost with those. Try not to use retirement savings for this option. Not all 401(k) plans allow penalty-free withdrawals for education purposes. And only tuition, fees, and books—not room and board—qualify for penalty-free withdrawals from IRAs. Remember: You can get parental education loans, but you can't get parental retirement loans.

7. Divide another third by 10. Can you squeeze that amount out of your monthly budget? Most colleges will let you pay all or part of the bill on some sort of 8-, 10-, or 12-month plan. If your household budget seems too tight, don't forget that when a student moves out, food, car insurance, allowance, and other costs will decline, generating money that can be sent to the college. In addition, you might get a bigger rebate on your taxes by claiming one of the education deductions or credits. If you can squeeze more out of the monthly budget, great!

8. That final third—whatever you can't fund from savings or the monthly budget—can be borrowed through the PLUS program or as a home mortgage or a personal loan.