Overall, saving for college is a wise decision, although it may reduce the amount of financial aid provided to the student. Saving money for college reduces the amount of loans the student must take out, which lessens his financial burden after graduation.
There are several other reasons why saving for college is still a good idea. Parental savings do add to the expected family contribution to an education, but not as much as many suspect. If a parent saves $50,000, the expected family contribution only increases by $3,000. The only scenario where a large savings account substantially contributes to the expected family contribution is when the household income is very small. Household income, in general, contributes much more to the calculation of financial aid.
In general, it is also better to be safe than sorry when applying to colleges, as savings take many years to accrue, while financial aid is determined over the course of several months. If the household income rises significantly right before applying to college, the amount of financial aid available to that student becomes lower. Also, financial advisers strongly advise against minimizing liquid assets in hopes of gaining more aid. Such a strategy leaves the family in a bad financial situation if an emergency or job loss occurs.