College saving: Do it now

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NEW YORK (CNN) -- As the stock market was tumbling early this year, 40-year-old Eric Horowitz decided he could handle only so much pain. His daughter Elizabeth attends private high school, and a year from September she'll be a freshman in college. So Horowitz chopped his exposure to stocks to about 60% of his portfolio down from 85%.

"I think the stock market is always risky," says Horowitz, a single, divorced father in Manhattan, and a self-employed "executive coach." "You always bet on yourself first. First put your money into yourself, into your children."

Parents are spending record amounts for their children's education. The average cost for tuition, fees, room and board at a four-year private college is $32,307 this year, as calculated by the College Board. That's up 6% from the prior academic year.

"How am I going to make it?" asks Horowitz, who says he is already paying $30,000-a-year for Elizabeth's private school education. "How am I going to get all four years through - and hopefully she won't go to graduate school."

Horowitz is not alone in fearing that the stock market could be too volatile to provide the income he needs to pay for Elizabeth's education.

Mutual fund giant T. Rowe Price says parents have been pulling back on investing in 529 college savings plans, which accumulate tax-free as long as the account is spent on a child's college education. New accounts this year are down about 20%, according to T. Rowe Price, while existing customers are contributing 10% less to 529s.

"It certainly appears as though it is the economy that's impacting consumers," says T. Rowe Price's Tom Kazmierczak. "It's very easy for parents to think to themselves that they can cut college savings when they have to choose between saving for college and paying for a mortgage," he says. "It really can be the wrong thing to do particularly if you've got younger children at home."

Financial advisor Thomas Henske of Lenox Advisors recommends that clients who can afford it tuck away $10,000-$12,000 annually in an investment account for each child beginning at birth. If the investments can achieve an 8% return, the child's college expenses should be fully funded at about $90,000 a year, he estimates.

"What's going to make the difference is putting that money away on a regular basis, investing it the right way with a long term approach," says Henske.

Robin Kahn, an attorney who is mother of two students at Millburn High School in New Jersey, says she and her husband Scott ignored a close friend who had advised them to begin saving for college when their children were born.

"It wasn't until the mid-90's when we started," says Kahn. "That was definitely a mistake. We should have listened."

Both children, Max, a senior, and Gabrielle, a freshman, now have investment accounts for college. But their parents expect to dip into their own savings for college.

"It's definitely not enough. We don't have enough for four-years for each of them," Kahn says. "We'll have to see what scholarships or grants or loans are available to us."

Horowitz also says he hasn't saved nearly enough to pay for Elizabeth's college. His plan is to set aside as much of his annual earnings as possible to pay for tuition, and take out loans for the remainder.