Dear Carrie, We just sent our daughter off to her first year of college — and wrote a big, fat check for her private university's tuition, room and board. We don't qualify for financial aid, but the school does offer a program that will let us prepay at current rates. Does this make financial sense? —A Reader

Dear Reader, It's a bittersweet moment when your child goes off to college, isn't it? You're proud that she's making this important step towards adulthood, and you're heartbroken to see her gone. And if you're anything like most parents of college students these days, you might be a little sick at the amount of money you'll be paying over the next four years.

Education: A Big Ticket That's Getting Bigger

With good reason. Higher education is hugely expensive, and tuition costs continue to rise at about twice the general inflation rate (the government-calculated Consumer Price Index is currently at 3.6 percent). According to the College Board's "Trends in College Pricing 2010" report, tuition and fees at private colleges have increased at an annual average rate of 3.0 percent above inflation over the last decade. At public universities, tuition and fees have gone up even faster, outpacing inflation by an average of 5.6 percent annually.

Take Dartmouth College in New Hampshire as an example. Tuition for the 2011-2012 school year is $41,736, a 4.4 percent jump over 2010-2011. If we assume tuition will increase by that amount over the course of the next three years, 2012-2013 will cost $43,572, 2013-2014 will cost $45,490 and 2014-2015 will cost $47,491! If you assumed a 6.6 percent inflation rate (in line with historical averages), the difference would be even more substantial.

So what is a parent to do? If you can swing it, one possible way to at least take the sting out of the inflation increases is to pay for more than one year upfront.

How Prepayment Works

First, I want to be clear that when I say "prepayment," I'm not referring to some of the original 529 plans designed to let parents of young children prepay tuition at today's rates — essentially, an investment to hedge the long-term effects of college inflation. The tuition prepayment plans I'm talking about are generally offered by the institution (mostly private universities) once a student is enrolled.

Typically, the terms are straightforward: You pay two, three or four years' tuition but at the current tuition rate — reducing your inflation risk to zero and potentially saving you quite a bit of money (in my hypothetical Dartmouth example, paying four years in advance would save you $11,345).

That would be a big check, obviously: $166,944 to cover four years of tuition. Of course, you could invest that hefty sum, but if the money is earmarked for her education, it wouldn't be prudent to invest it aggressively given the short time horizon. And in today's interest rate environment, it's hard to beat the general level of inflation, and even harder to outpace college inflation.

Of course, you should check with your school about its policies. Most schools only offer this option to students not receiving financial aid, and the offer only applies to tuition (room and board and other annual fees will still need to be paid, of course, and are still subject to inflation).

The biggest concern for most parents is what happens if their child leaves school unexpectedly, but it's less risky than you might think. Most schools refund prepaid tuition on the same prorated basis as they would a normal tuition payment. If a student transfers between semesters, most schools refund the entire remaining prepaid tuition.

Tuition prepayment is a very good opportunity to lock in the cost of a big-ticket expense that is almost certainly going to be more costly in the future. And there's some psychological comfort in knowing you've covered the lion's share of your daughter's college expenses in advance.

Or You Can Spread Tuition Costs Out

Most parents won't be able to prepay multiple years — even one year can be a challenge. Many colleges and universities will let you spread payments over the course of a year (typically 10 installments), often with the help of a third-party payment processor. Most of these plans are interest free, although the payment processor typically charges a modest fee for set-up and account maintenance. But be wary, especially if you choose to pay your installments by credit card. The payment processor may charge late fees if you miss a payment, and most charge substantial fees for the convenience of using a credit card (as much as 2.99 percent per transaction). Read the fine print — and if you don't see any fine print, call and ask for specifics! (There are better ways to borrow for college costs than using your credit card, but that's a topic for another column.)

I hope your daughter thrives in her freshman year!

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can email Carrie at [email protected]. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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