While many people equate high-quality education with a high price tag, a number of the country's most prestigious institutions are public. In fact, annual tuition at about half the nation's public colleges and universities is less than $4,500, though a year living on campus can still cost more than $10,000.

You may qualify for up to a $1,500 Hope credit for money you spend on a child's educational expenses during the year if he or she is enrolled in the first or second year of a qualified college or other higher education institution. You may also take the credit for your own expenses. In addition, you may qualify to claim up to $1,000 per year of lifetime learning credit for all other qualified higher educational expenses, including your own. In 2004, that amount is to $2,000, or 20% of the first $10,000 you spend.

You're eligible for the full amount of these credits if your modified adjusted gross income is less than $40,000 and file your tax return as a single filer, or less than $80,000 if you file a joint return. The credits are phased out gradually and then eliminated at $50,000 for single filers and $100,000 for joint returns.

In addition, you may be able to take an above-the-line deduction for qualified higher education expenses you pay during the year. You're eligible for a maximum deduction of $4,000 if your adjusted gross income isn't more than $65,000 if you file as a single taxpayer, or $130,000 if you file a joint return.

You might want to investigate some of the specific college-planning options described below. In some cases, there may be salary caps on how much you can earn and still participate. You can get helpful, up-to-date information on the websites of the U.S. Department of Education (www.ed.gov) or The College Board (www.collegeboard.org).

Education savings accounts.You or any relative or friend can contribute up to a total of $2,000 per child per year to a Coverdell education savings account (ESA) set up in the child's name. The earnings in the account are completely tax free if the money is used to pay qualified education expenses from kindergarten through graduate school, such as tuition and room and board, anytime before the beneficiary reaches age 30.

U.S. savings bonds.Interest earnings on U.S. savings bonds may be completely tax free if you use the money to pay qualified higher education expenses and meet other criteria. However, there is a ceiling on the amount of income your family can be earning at the time you cash in the bonds to qualify for the tax break.

You can save for college by opening a custodial account under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) in your child's name. One advantage is that the earnings are taxed at the child's rate once he or she reaches age 14. Before then, some of a child's earnings may be taxed at your rate if they exceed the annual limit.

But the strategy can backfire if your child applies for financial aid. That's because most financial aid formulas require students to contribute 35% of their savings, while parents are required to supply, at most, 6% of theirs. In addition, the child can take control of the account at 18, 21, or 25 depending on the state where he or she lives. There's no way to ensure that the money will be spent as you intended.

If you don't have as much money as you need to pay for college, schools may offer a package of aid:

• Scholarships or grants, which do not have to be repaid.
• Loans, which must be repaid, but usually not until after graduation. Working in certain jobs or locations can reduce the loan or postpone repayment.
• Work/study grants, which colleges offer students. Sometimes earnings are deducted from tuition and other times the student earns a salary.