NEW YORK (MONEY Magazine) - Dick Schwartz always knew that C-day - as in college - would come.

He and his wife Shari also understood better than most parents exactly how big their son's college bill might be. After all, both are teachers, and Dick, who runs a prestigious international studies program at a Minneapolis high school, has written dozens of recommendations over the years for seniors applying to pricey colleges.

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Curing the college savings blues As Dick and Shari Shwartz figure out how to pay tuition bills for son Jake, 18, they also need to save for retirement and for college for Anna, 11. Certified college planner Gary Carpenter offers these recommendations.       1. Tighten your belt    No, it's not as easy as borrowing money. But every dollar that can be squeezed out of the family budget is worth two in loans and interest. Expenses that can likely be chopped: restaurant meals and vacations. Maybe the Schwartzes should also consider driving an economy car rather than an SUV, says Carpenter. One place not to cut: contributions to retirement accounts.    2. Spend 529 money first    Colleges look at money in 529 accounts as an asset, which can reduce the amount of financial aid they offer. Spend that cash in the first year, and Jake may receive more help in future years.    3. Share the cost    Overwhelming a kid with student loans isn't a good idea, but letting him take on some debt for his education is appropriate. Jake and his parents have agreed to split costs, even if he goes to his expensive first-choice school. "If Jake graduates with $40,000 in debt and elects an extended repayment period of 20 years for at least half of it, he should be able to manage," says Carpenter.

But now that college acceptances are rolling in for his own son, Jake, 18, it's painfully clear that the couple didn't save nearly enough.

"Like many kids' milestones, I just can't believe how fast this moment came up," Schwartz says sheepishly.

Here are the stark financial facts. Together, Dick, 55, and Shari, 52, earn $110,000 a year. So far they've saved less than $10,000 for Jake's education ($4,000 in mutual funds in the parents' names and $5,500 in a 529 account). Total annual expenses at his first choice, the University of Oregon at Eugene, will top $25,000. The shortfall over four years is an eye-popping $90,500.

The family is still waiting to hear whether Jake will qualify for any financial aid. But given their six-figure income, they're not holding their breath. And they're reluctant to borrow a ton to fill the gap.

"We don't want the angst of being saddled with so much debt," says Dick.

Like many families, the Schwartzes are facing staggering college bills at just the moment they should be tackling another oversize financial challenge: saving for retirement. Although the couple have worked for more than 20 years, modest teachers' salaries and unexpected family expenses have cramped their ability to save. To date they have less than $40,000 in their retirement accounts. To retire with a comfortable income similar to what they enjoy now, they'll need nearly $1 million by age 65.

"Should we have saved more? Yes, absolutely," Dick admits. "I wouldn't call us terrific financial planners, but the bottom line is, we'll find a way."

The Schwartz family is by no means alone in their college financing dilemma: The average American family has saved less than $7,000 for college by the time their child is in high school.

Is there anything scarier - or more guilt-inducing - than having a kid ready to go off to college but lacking the dough to pay for it? How can you figure out a way to foot the bill for that B.A., or at least a big chunk of it, without undermining your own retirement savings? These strategies should help.

What? Reward all your kid's hard work with a fifth-choice, bargain-basement college? Don't turn up your nose.

Many public universities offer a first-rate education; some are even nicknamed "public Ivies." You'll pay the least at schools in your own state, but you don't have to stick close to home to get a bargain: Public universities in other states are usually far less expensive than private colleges as well.

Before deciding to take on significant debt for a pricey school, consider how well a starting salary in your child's likely profession will service four years of student loans. Does it make sense for a college grad earning $40,000 in, say, social work or publishing to start a career with $80,000 in loans?

Turn a gimlet eye on your own borrowing habits too. If you already live with considerable credit-card, car and mortgage debt, borrowing more for tuition could put you too deeply in hock.

Think about compromising between Sticker Shock U. and Degrees R Us. Dick is considering having Jake start at the University of Wisconsin, which, because of a reciprocity arrangement with Minnesota schools, would cost only about $9,000 a year. Then Jake could transfer to the University of Oregon in a year or two.

He'd still get most of his education at his top-choice school, and his degree would be from Oregon as well; meanwhile, the family would save at least $15,000 to $30,000 on college bills. And Wisconsin could even turn out to be more fun since Jake, an A- student and an avid tennis player, is being courted to join its tennis team.

The Free Application for Federal Student Aid (FAFSA) determines how much you're expected to contribute toward college costs based on your family's income and assets. This, in turn, affects how much money the government will lend you and how much financial help schools may offer to bridge the gap between a college's total costs and the amount you're able to pay.

Fill out a FAFSA every year and file it with the Department of Education by mail or online (fafsa.ed.gov), even if you think you earn too much to get aid, advises Gen Tanabe, co-author of "Sallie Mae: How to Pay for College." Colleges can surprise you.

Plus, if your circumstances change for the worse, schools will need to refer to the form to help determine if you might be newly eligible for aid. "The form is like an insurance policy in case a parent loses a job or has unexpected medical expenses," Tanabe explains.

College directors of financial aid cringe when a parent calls to negotiate. A college can't discount like a flea market merchant, they argue. So conduct your bargaining discreetly.

If your child receives a far less generous package from her first-choice school than she gets from another college, don't ask the director of financial aid at her target school for a better deal; ask for help in understanding the discrepancy, says Gary Carpenter, executive director of the National Institute of Certified College Planners. You'll likely be asked to send a copy of the generous award letter, after which Top Choice U. may adjust its offer.

The temptation to borrow against your house or your retirement account is practically irresistible. But resist you should. A home-equity loan could put your home at risk and isn't much cheaper than borrowing under the federal Parent Loan for Undergraduate Students program.

And if you start with a PLUS loan, you'll preserve your ability to tap the equity in your home later should you need to borrow more.

As for borrowing against your nest egg, Carpenter says flatly that it's retirement suicide. "You'll lose earning power in a tax-deferred account, and your chances of putting it back are nil."

Experts are divided on whether families should pursue outside scholarships. Because colleges often reduce their aid package by the amount that a student is awarded, winning an outside grant may not ease your financial burden.

If your college is extending a large package, ask the financial aid director whether outside scholarships will reduce it before you apply for them.

If your package is small or nonexistent and your child has some distinct talents, Tanabe says, the best strategy is to hunt for multiple small scholarships from local service organizations such as Lions clubs or the Knights of Columbus. Also check out online resources, including CollegeAnswer.com and Scholarship.com.

In the end, the key to figuring out which college you can really afford is to weigh the emotional appeal of an expensive first choice against a scenario of what will transpire a few years down the road.

For the Schwartzes, there are ample reasons to spend and borrow conservatively for Jake's education. Not only do they have their own retirement needs to consider, but they also have their daughter Anna, 11, who will be heading off to college herself in seven years.

And as Shari points out, Jake will likely go to graduate school too. Sometimes affordability trumps status - even when it comes to college.

The cost of borrowing for college is about to get steeper. Starting July 1, rates on new federal loans for students and parents will rise 1.5 to 2.4 points and be fixed instead of variable.

Rates on existing variable loans are due to be reset by July 1 as well and will likely rise to comparable levels. To keep your payments manageable, take these steps.

Max out student loans first

Even with the new rate hikes - rates will rise from 5.3 percent now to 6.8 percent - loans for students (called Stafford loans) will be far cheaper than borrowing options for parents. So have your child borrow in his own name first (you can always help with payments later on).

Next year, loan limits will increase to $3,500 from $2,625 for freshmen and to $4,500 from $3,500 for sophomores. Lifetime cap: $23,000.

Shop around

Look for lenders that don't charge origination fees and that offer repayment incentives such as reducing your rate if you agree to have payments automatically deducted from your bank account. You can compare college lenders online at finaid.org.

Consider a PLUS loan

Rates on these loans for parents will rise from 6.1 percent to 8.5 percent. Still, that's not much more than current rates on home-equity lines of credit - and you're not risking your house. Then too, you don't need stellar credit to qualify, and you can deduct up to $2,500 a year in interest without itemizing.