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Conventional wisdom tells us college is very, very expensive, and we'd better start saving if we want our kids to get an education and a good job. A year of undergraduate study at a private college can easily top $40,000, and even in-state public universities cost more than $12,000 per year. Few people can fork over that kind of money without planning ahead.

But are we really in deep trouble if we don't have a college fund set up for our 5-year-old? How should we balance saving for college with other financial goals?

Sometimes, putting money into education funds can be a mistake -- or at least not the best use of your money. Here's why:

1. You can't get a loan for retirement

Other financial goals come first. It's heresy to some, but it's true: Your retirement plans are more important than your children's college funds. Your kids can get through college somehow, and you will probably find a way to help them, but it's more important to plan for your retirement. Remember, your kids can get student loans, but there's no such thing as a retirement loan.

If you have to choose between putting money in the kids' college funds and buying a house, buy the house. You may be able to pay tuition with a home-equity loan when the time comes.

2. Education funds aren't always the best investments

Typical education savings plans may have drawbacks, such as:

  • Limited investment options. Many education funds pay only interest; others let you invest in the stock market. You can't use the typical education fund to invest directly in real estate or start a small business, for example. Compare the rate of return you expect with what you could receive in alternate investments.
  • Difficulty predicting future tax benefits. Tax rules change, and it's hard to predict future income levels. Sometimes by the time kids reach college age, their parents' income level is too high for certain tax advantages they'd been counting on.
  • Financial aid considerations. Students are expected to contribute a higher percentage of their savings to their college education than their parents are, so placing money in your child's name may hurt his or her chances of getting financial aid. You may be better off keeping the money in your name.

3. Students should invest in their own education

Every year, a number of freshmen trek off to college on their parents' hard-saved money, only to spend more time the first few semesters partying than studying. Would they crack the books more if they were paying the bill? Even the most responsible kids seem to do better in college when they help pay for it.

Helping your kids through college is wonderful and demonstrates that you value their education. Give enough to help, though, not enough to lessen their investment in the outcome.

4. Education doesn't have to cost as much as we're told

One college can easily cost twice as much as another, but is it worth it? Not necessarily, according to Kiplinger's annual college values report. (See the 2011 list of public colleges here and private colleges here.) The best education is not always the most expensive.