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YOUR MONEY: Saving on college expenses gets priority now

When Paul McGinnis heads back to college in Spokane, Wash., he'll be packing more than his CDs, laptop and favorite sports posters. He's also carrying some newfound financial awareness.

When Paul McGinnis heads back to college in Spokane, Wash., he'll be packing more than his CDs, laptop and favorite sports posters. He's also carrying some newfound financial awareness.

Money's tight this year in the McGinnis family, and it's made the 19-year-old college sophomore think twice before whipping out his debit card for every little purchase. Earlier this year, his dad, Greg, was laid off from a 20-year job in the building materials industry and his mom, Nancy, took a pay cut from her administrative job at Kaiser.

Everyone's watching the wallet, including Paul, who will be living in a dorm at Whitworth University.

"I'm going to be cutting back on the little things, like eating out when I can eat in the cafeteria for free, or going to the mall to buy clothes I don't really need," said Paul, wearing a T-shirt from the campus radio station where he is a disc jockey.

He's seen the financial impact at home and among his college buddies. Six of his freshman-year friends -- from Montana to California -- aren't returning because of financial setbacks in their families, he said.

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To help out with the $38,000 tab for tuition, room and board at Whitworth, the Elk Grove, Calif., teen is contributing $5,000 of his own money, including savings from his summer job at California Public Employees' Retirement System.

As millions of students head back to colleges, they're facing one of the tightest financial worlds in recent years. College costs have soared, while job prospects dimmed this summer. And for many, their parents are confronting tough economic realities. The Bank of Mom and Dad may be running low this year.

It's hit home. Seventy-five percent of teen boys -- and 85 percent of teen girls -- are stressed about the economy, particularly paying for college, according to a recent survey by Bank of America and Seventeen magazine.

And no wonder. Total costs for tuition, room and board at four-year public colleges was $14,333 in 2008-09, the College Board said, up 5.7 percent from a year earlier. College costs have consistently exceeded inflation for the last few decades, the board noted.

With that in mind, here are some money-saving tips:

HAVE THE TALK

Financial experts -- and experienced parents -- say it's best to be clear about who pays for what. Don't wait till that first sky-high cell-phone bill to discuss spending limits.

Talk about money -- what parents will pay for (tuition, rent, etc.) and what the student will pay for (social life, Starbucks, etc.). Also talk about what happens, and who pays, when mistakes occur, like overdrafts, bounced checks or late payment fees.

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Bill Hardekopf, CEO of Lowcards.com and a father of three college-age children, recommends that parents use their credit card bill to explain the perils of paying bills late and incurring penalties. They should explain when it's a good time to use a credit card (textbooks, emergencies, plane tickets home) and when it's not (clothes, entertainment and burgers).

El Dorado Hills, Calif., resident Natalie Ebinger, who has two kids in college, said she didn't want them to struggle financially in college as she did. Ebinger and her husband started socking away $100 a month when their University of Arizona son and UC Santa Barbara daughter were infants. They're doing the same today for their 12-year-old twins, through a 529 college savings plan.

Today, the Ebingers pay all tuition, books and rent for their college students -- and a $400 monthly allowance that "is theirs to do what they want." But unusual expenses, like overseas calls to friends studying abroad or a big shopping bill at Nordstrom are on their dime.

CONSIDER A CONTRACT

It's not for every family, but some financial planners recommend signing a spending contract. Bob Dreizler, a longtime Sacramento financial consultant, says he's heard "too many stories of parents resentful of their kids' college spending" or horrified by the huge debt accumulated by college graduation.

When his own daughter, Sonya, went off to UCLA a decade ago, Dreizler and his wife typed up a simple contract on the computer. It spelled out in basic, clear terms how much they'd provide every year for four years of college. Anything over that amount was to be paid by their daughter. If she needed more, they'd loan her the money at a nominal interest rate.

The contract didn't go over well at first.

"I didn't really like it," said Sonya Dreizler, now 29, "but in the back of my mind I knew it was a good idea."

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It changed her approach to college, she said. "Once I knew I was responsible for paying for a good portion of my college, I applied for a lot more scholarships, the kind I didn't have to repay."

Dreizler picked up between $500 and $3,000 in annual scholarships and took part-time jobs. According to her father, she graduated in four years, debt free.

And her parents' financial lessons evidently rubbed off: The English and Latin studies major is now a certified financial planner in San Francisco. As for that college contract her parents handed her? "It's something I'd recommend to my clients today."

WATCH THOSE TEXTBOOKS

Textbooks are often one of the biggest sticker shocks at college, especially for families in public schools who have never had to buy books. With new textbooks costing $100 and up, books can be a major budget-buster.

Students like Betty Lamptey, a California State University, Sacramento, biology major, have learned to cut corners. During her first semester last fall at CSUS, Lamptey said she forked over $600 for textbooks and supplies. Not anymore.

Now, she looks for used books online at Web sites, like www.campusbooks.com and www.textbooks.com .

"My chemistry book last semester was $150 new. I got a used one for $35," said the Natomas, Calif., resident.

Many college bookstores, including CSUS, let students rent textbooks online, instead of buying them.

CELEBRATE MODESTLY

College doesn't have to be a budget-buster if students are aware of what they're spending. Dreizler recalls that many of her Southern California college friends enjoyed unlimited spending accounts. Those who didn't, like herself, gravitated to gathering friends and entertaining at home, saving fancy drinks and dinners out for special celebrations. "And we went to the beach a lot, which was free."

Others cut back where they can. At CSUS, Lamptey, a 29-year-old single mother of four who commutes from Natomas, says she saves by parking several blocks away and walking onto campus. Instead of paying $150 a semester, "I walk in and get some exercise."

CREDIT OR DEBIT?

Should college students carry a credit or a debit card? There are two schools of thought, especially with credit cards. Some financial experts believe in starting early. Dreizler, for one, believes students should have a credit card while still in high school so they can learn from their mistakes while under the helpful eye of parents.

Others, like kids-and-money expert Janet Bodnar of Kiplinger's personal finance magazine, say college students should wait until they have a job or income to pay the monthly bill.

College students have an average of 4.6 credit cards, according to student lender Sallie Mae. And a recent study said the median credit card debt of college freshmen in spring 2008 was $939, nearly triple from four years earlier.

Starting next February, anyone under 21 must have a parent's co-signature or proof of income to obtain a new credit card. And companies will be prohibited from offering free T-shirts, CDs and other trinkets aimed at enticing college students to sign on the dotted line.

Students who are considering a credit card should look for one with the lowest interest rates, annual fees and best rewards. Use one of the comparison Web sites, such as www.lowcards.com , www.creditcards.com or www.cardratings.com .

For the bare essentials, college students need a checking/savings account with a debit card they can use to get cash withdrawals. They should use a bank or credit union with branches in their college town, so they won't get hit with out-of-network ATM fees.

Students should consider signing up for e-mail or cell-phone alerts that let them know when the checking account is running low or a direct deposit has landed.

But they need to pay close attention to the terms of any account they are setting up, especially fees for overdraft protection and other services.

Above all, students shouldn't overly worry about the financial stuff. Mistakes happen. They can learn from them.

Harlan Cohen, author of the college advice book "The Naked Roommate," said: "Financial circumstances can be the same as a difficult roommate. It helps you to persevere, to reach out for help and to appreciate what you have. And there's nothing wrong with that."

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