Many families mistakenly believe that they are penalized for saving, and that they would be better off if they didn't save. The Federal Need Analysis Methodology does count a portion of the family's assets in determinations of financial need, so a family with more assets will get less need-based aid. However, the federal government does not count all of the assets, just a fraction, so a family with money saved will have money left over. The bottom line is the more money you save, the more options you'll have and the less you'll need to borrow. It is always cheaper to save now than to borrow later.

Many parents mistakenly believe that if they don't save for college, they'll be able to shift the costs to their children through loans, or that the federal government and the schools will pick up the tab. Student loans only go so far in covering college costs, and the government and schools consider parents to have the primary responsibility in paying for their children's education. Even if your child gets a lot of need-based aid, it doesn't cover the full costs. The Pell Grant, for example, covers only 10% of current private four-year college costs. Work study covers only 10-20% of college costs. Failing to start saving now will only hurt you later. The only viable hedge against increases in college costs is to save as much as possible as early as possible.

Families also think that they can rely on scholarships to pay for college. For example, four-fifths of parents expect that their children will receive scholarships, but only about 7% of students actually receive private sector scholarships. The average amount of the scholarship received by undergraduate students is $2,000. Moreover, due to outside scholarship policies, receiving a private scholarship will often reduce need-based aid packages. It is still worthwhile to search for scholarships, because scholarships often replace loans, but one must be realistic about the chances of winning a scholarship (1 in 15) and the impact of scholarships on paying for college (less than 10%).