(FORTUNE Magazine) – Autumn is here, and the sight of yellow school buses should goad parents of thumb-sucking toddlers to start doing something about college tuition. After all, fees have been racing skyward by an average of 7.8% a year for the past ten years, far outpacing inflation. By the year 2010, tuition at New York University, say, could cost $57,000 a year--or $228,000 for a sheepskin. And that doesn't even include such basics as books, a bed, and board. (See table for other projections.)

The message: Start that college fund well before your kid's first loose tooth, and still be socking money into it through the senior prom. Financial planners regularly hear from parents who put off the inevitable and try to make up for it by being imprudently aggressive. "Even age 14 is too late to begin saving for college," says Robert Cohen, a planner in Boston whose best professional credential may be that his 19-year-old daughter is the third he's been able to put into a private college. What he means, of course, is that you won't have enough if you wait until then, so start early.

Consider first how you want to set up your college savings. Uniform Transfers to Minors accounts, which come with tax and legal advantages, can be set up for free by your bank or broker. You have custodial control until your youngster reaches his or her majority, but the account is in your child's name. This protects the money from financial misfortunes like creditor liens and lawsuits. The first $650 in annual interest is tax free, you pay 15% on the next $650, and then your highest rate until the child is 14. At that point everything above $650 is taxed at 15%.

The one drawback to the UTMA account is that your money is no longer your own. Suppose you've put aside a Princeton-size nest egg, but your youngest son opts for good old State U. If he controls the money, he might just come home for winter break to say he and his girlfriend are moving to Prague to start a rock band.

A trust gives you more control over your money, but unless you're putting away $10,000 to $20,000 a year for each child, you'll find this route prohibitively expensive, says David Swift, a trust attorney in Columbus, Ohio. Instead, two equity mutual funds are worth considering for your college stash: Twentieth Century Investor's Giftrust and Stein Roe & Farnham's Young Investors.

With the Giftrust fund, you would invest in your child's name, locking the money in for at least ten years or until the child becomes a legal adult. If you utilize this fund, you'll pay a 15% tax rate on the first $1,550 of income, a 28% rate up to $3,700, and higher rates beyond that amount. The fund is ultimately paid out to your child. Giftrust has shown an average annual total return of 24% over the ten years ending June 30, compared with 14.7% for the S&P 500. Co-manager Glenn Fogle credits this performance to the fact that "our investors are forced to do the right thing and ride out the bumps to long-term gains."

The Young Investors fund, launched in April 1994, invests in companies with products that kids can relate to, like Coca-Cola and McDonald's. With a total return for the year ended June 30 of 30.17%, vs. 26% for the S&P, the fund aims to give your young ones good long-term returns while teaching them via crayon-colored newsletters the rudiments of how Wall Street, and their investments, work.

--Eileen P. Gunn