With five years to go before your final tuition bill is due, you can keep up to a fourth of your college account in conservative stock funds, but shift about half your money into a bond fund or "laddered" CDs so a portion matures each year. Move the money you need for next year's bill into a money-market fund. Repeat each year.
Calculate your expected family contribution again. If it looks as if you'll qualify for financial aid, try to lower the income included in the calculations -- by, say increasing your pre-tax contributions to a flexible spending account, if your employer offers it.
Line up loans. You won't know how much you'll need to borrow until you get the aid package from the college, which usually comes in April. If you don't qualify for a low-interest, need-based loan, you can apply for a PLUS loan (in your name) or a Stafford loan (in your child's name).
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If you don't have a home-equity line of credit, apply for one well in advance of your first tuition payment. Home-equity lines charge the prime rate or prime plus one point, and the interest is usually tax-deductible if you itemize.
You can borrow 401(k) money at a moderate interest rate -- typically at prime plus one point, which you pay back into your account. You won't owe taxes on the loan as long as you repay it. Borrowing from a 401(k) is usually more expensive than student loans and home-equity loans -- especially when you consider how much you'll lose in earnings while the money isn't invested.
Sell on rallies. After your child starts college, look for market upswings to start selling your stocks or stock-fund shares. You don't want to be forced to sell during a market tumble to cover an impending tuition bill.
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