Dear Bruce: My stepchildren are a year apart in age. The oldest will begin college in fall 2008. The younger child will begin a year later. Their parents didn't put any money away for college. My husband and I have about $160,000 in retirement savings and six months' worth of expenses in our "emergency" account: not very much for two people in their early 50s. I am retired on disability and am earning only a small pension and an equally small disability insurance benefit. I don't want to jeopardize our retirement by spending the modest amount we have already put away.

The children's mother is notoriously bad at money management and has nothing saved and poor credit, so we don't anticipate her contributing anything. On the plus side, she works for a private university, so the kids will be entitled to about 50 percent off their college tuition wherever they go. My husband isn't worried because he is sure the children will be able to get student loans to pay for everything. I believe he is mistaken. Do you have any advice? — B.B., via e-mail

Dear B.B.: First of all, you are doing things in reverse. In my opinion, no one is obliged to impoverish themselves to put their kids through school. Whether your kids will be eligible for loans is something I don't think anybody can tell you definitively. Your retirement and savings accounts, if they are in legal retirement accounts, cannot be counted as an asset when calculating your "need." The fact that their mother works for a private university is a huge plus, but the kids might not want to go to school there. You say they get 50 percent off wherever they go; I'm not familiar with that type of reciprocity, but it may indeed exist.

Are the kids working now and will they be working while in college? There is absolutely no reason why college students can't work a minimum of 20 or more hours a week, especially on school breaks. They should contribute and apply for student loans.

Dear Bruce: What is the best strategy for refinancing a home that is currently financed with an interest-only loan? My initial mortgage will expire next year; it is 3 percent for one loan and 7.2 percent for the second, as a home equity loan. — F.V., via e-mail

Dear F.V.: While there are exceptions, interest-only mortgages should be avoided by almost all borrowers. Your second mortgage is 7.2 percent, and the 3 percent is about to go away. If a significant amount of money is at 3 percent, I'd still hold off, even though interest rates are creeping upward. Three percent money is hard to pay off early. Since you have a 7.2-percent second mortgage, the possibility of combining the two with a locked-in interest rate might be good to explore.

You also didn't mention your equity. Your options diminish dramatically as your equity diminishes. You have two loans and your property might have dropped in value, which may have an adverse effect on your refinancing ideas.

Sit down with a banker and have him explore the various permutations. It should be obvious to both of you which way to go.

— Send your questions to: Smart Money, P.O. Box 2095, Elfers, FL 34680. E-mail to: bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.