5/9/2012 3:37 PM ET|
Student loans -- for kindergarten?
More parents are turning to loans to finance their children's private school educations. But is the pre-college debt worth the risk?
Instead of saving up for their sons' college education, Bill Dunham and his wife are taking out loans for high school. Their eldest son will begin ninth grade at a school in Boston where annual tuition runs around $10,000 -- and they already pay $5,000 a year for their younger child. A project manager for a mechanical construction company, Dunham says the schools referred him to lenders who specialize in pre-college education loans. He's taking a loan to cover his son's full high school tuition, which he plans to repay over two years. "If we had the money, we'd pay it now," he says.
It used to be that families first signed up for education loans when their children enrolled in college, but a growing number of parents are seeking tuition assistance as soon as kindergarten. Though data are scarce, private-school experts and the small number of lenders who provide loans for kindergarten through 12th grade say pre-college loans are becoming more popular. Your Tuition Solution, one of the largest lenders in this space, says demand for the upcoming year is already up. This month, the total dollar amount of loans families requested rose 10% compared with a year ago; at that pace, the company expects its total funding to rise to $20 million for 2012-13. Separately, First Marblehead, which exited the market in 2008, re-entered last year as demand for loans began to rise.
Much of this demand is coming from high-income families. Roughly 20% of families that applied for aid to pay for their children's kindergarten through 12th grade private school education had incomes of $150,000 or more, according to 2010-11 data, the latest from the National Association of Independent Schools. That's up from just 6% in 2002-03. Those who don't get approved for free aid, like grants, increasingly turn to loans, experts say.
For parents who sign up for pre-college loans, the risks can be significant. To begin with, they could be repaying the loans for a long time. Sallie Mae's and Your Tuition Solution's pre-college loans have repayment periods of up to three and seven years, respectively. Loans at the Hawken School in Chesterland, Ohio, don't have to be repaid until after the child graduates college. That means parents could be on the hook to repay K-12 and college loans simultaneously. Already, about one in six parents of college graduates have loans, and they're projected to owe nearly $34,000 on average this year, according to FinAid.org. Taking on loans before college leaves parents at risk of owing larger debts, experts say.
Schools are offering their own financing options as well. The Blake School in Hopkins, Minn., says 132 of its families signed up for its 10-month payment plan this year -- which charges an 8.5% fixed rate -- up 19% from the previous academic year. The Hawken School says it provides a small number of loans with a 6% rate. "These loans aren't as taboo as they once were -- there are a lot more schools that are much more willing now to present a loan program as an affordability option," says Kristen Power, the northeast regional director for the NAIS' School and Student Services, which processes families' financial aid applications to private schools.
The rise in private school loans coincides with a rise in tuition. The average cost of private school is nearly $22,000 a year, up 4% from a year ago and up 26% from 2006-07, according to the NAIS. While schools increased their financial aid budgets, the gap between free aid and tuition costs is getting bigger for many parents. As a result, enrollment is dropping as fewer families can afford to pay. Total private school enrollment is projected at around 5.3 million this year, down 11% from 2007, according to the Department of Education.
The loans can also be expensive. The interest rates -- which can be fixed or variable -- range from around 4% to roughly 20%. (Lower rates are given to parents with higher credit scores.) And the loans can be large: The average loan given by Your Tuition Solution is $14,000. First Marblehead loans out up to $30,000 a year. At the Lake Trust Credit Union that's headquartered in Lansing, Mich., borrowers can have up to $40,000 outstanding in so-called K-12 education loans.
For those parents who are set on giving their children a private education, the hunt for an alternative way to fill the gap has intensified, says Brian Fisher, a partner at AdmissionsQuest, which provides consulting to families whose children attend private boarding schools. In most cases, parents are informed of these loans from the schools' admissions and financial aid offices, says Power.
The schools say they provide parents information on the loans but don't go out of their way to encourage the practice. Jose Baltier of Midland, Texas, says he was stumped about how to pay for his son's education at a selective boarding school in Massachusetts until he received the school's acceptance package, which included a brochure for the lender Your Tuition Solution. He says he contacted the company and a day later was approved for a loan.
To be sure, lenders say the loans are less risky than they were before the recession. Qualifying is harder and in most cases is restricted to borrowers in good credit standing and who submit income documentation. The repayment periods -- which previously stretched up to 20 years -- are shorter now, and the loan sizes lenders provide are smaller, says Power. Lenders also say they encourage parents who sign up for their loans to choose the shortest repayment period possible and to explore more affordable alternatives, like a tuition payment plan that allows parents to split up tuition costs typically over 10 months and doesn't charge interest.
Despite the risks, experts say many parents are intent on making private education a reality for their children no matter the cost. Robin Aronow, an independent educational consultant to families in New York City, says parents believe that private schools will give their children a higher quality of education and will help them get into a better college, which is why they're willing to stretch.
That's the case for Dunham, who says he and his wife haven't saved for college for their two children. Instead, he says, they're trying to give them the best education now in the hopes that it'll open doors to better colleges. "We'll figure out how to pay for it then, or with any luck they'll get scholarships," he says. "Right or wrong, we're hoping our experiment works."
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You have 30 kids in the room and 5 of them are ready for class. The others take the work throw it in the floor and tell the teacher to screw off. You have 3 kids that just need to be kicked out but the parents don’t want them at home and you just can’t get rid of them. It is a shame to see how these kids disrespect the teachers and students trying to learn. You can’t remove them as there is nowhere to put them.
If public schools could truly remove (like forever) a bully or a disruptive student people wouldn’t be sending their kids to private schools. Why are private schools better? They aren’t they just kick the trash out the door. It leaves for a much better environment for the kids that truly want to be there to learn. Why can’t public schools be ran with the same discipline as a private school.
I am forgetting the entitlement programs and my kid is a ball player he doesn’t need to study parents. Whatever, sad trash. Don’t see anyone stepping up to fix this problem anytime soon.
Paying for private pre-schools is about as dumb as it gets. It only enriches the people who own the school. No one can show where a kid getting a paid education is any better off than one who goes to public school. It is just an elite status symbol, nothing more. My child goes to "hoyti-toyti" school, where does yours go.
So are people going to default on this type of loan and put the burden on stupid people like me who work, pay my bills, don't live beyond my means, go without? Stay home with your kids, work with them....you teach them. Give up your manicures and pedicures and cigarette smoking, buying designer clothes, going out to dinner, vacations.
This is idiotic at best! Work to fix the school system. Say no to your children. They don't need every game, doll, and whatever else comes along. If you think education is important, then make it important.
We made the sacrifice and homeschooled our children. We couldn't afford private school and the public school in the area we lived was unacceptable. We made sure our children were socialized properly and participated in many clubs and activities. Making sure they received a good education was scary and hard work but it was all worth it to see our son graduate college this year. Our daughter is in college now as well. I realize this is not an option for everyone but it worked for us. In the end we loved homeschooling, it gave us tremenous flexibility and we were able to do many things with them that we would have not had they been in the school system.
This is Ridiculous. These will be the same people who 5yrs from now will be looking for help from the public to pay for these loans.
I can see it if your child is gifted and the local public schools don't offer the programs that you want for him/her, but for an average student, no way.
To go into debt for grade school is foolish. Just another way for people to "One Up" their neighbors in a declining society.
Yes, I agree it's silly to take out loans for Kindergarten, etc., but there are a lot of people who choose to send their kids to Faith Based schools which are always private. There are way too many people who have kids that don't parent their kids and think it's the teachers job to do so. Look at all the brats today! Go to any store or restaurant!! Education starts at home period! Wiser parenting makes smarter kids......
You should only do that if you can afford your own retirement and if you can afford to pay for that and college. I saw an article earlier where a couple wanted to take out a home loan to pay for thier kids school you shouldn't go in to massive debt to finance a kids school.
Wow. If these parents don't have the money up-front, they shouldn't be putting their kids in private school. They need to face the simple fact that they can't afford it. Plenty of people do just excellent with public school. What a joke.
That is ridiculous. Don't get me wrong, if you're kid is going for an ivy league school, having them go to a well known private school doesn't hurt but if you're struggling to pay 10,000 every year, how are you gonna come up with 40,000 a year if they do get into those schools? You can't just hope that scholarships will drop from the sky. I did very well in school but all I got offered is 1000 for one year and my dad still had to take a loan to help out with the rest.
Its sad that parents cannot choose a private school voucher to help fund private education in grades K through 12. Most public school funding is $10,000 + per child per year. Cost with public school is out of control and not getting the job done. Where I live, the tuition to local private schools grades K-8th are less than 1/2 the cost of what is spent per child at a public school.
This is epecially awful in areas with the worst public schools. If your child is not learning and is in a school plagued by violence, you are stuck if you cannot afford private school. In Washington DC, the parents have no choice, but Obama's children go to private school. Its obvious that Democrats value support from teachers unions over children being well educated. This is a clear sign that the left cares nothing about the poor.
This "might" make sense for someone with money in the market earning 10%+ per year since these student loans may have interest rates half of that or less, but it is a HUGE gamble . If the parents can't afford high school how will they afford college?
I suggest that parents do not plan on their children receiving scholarships or grants. Colleges are getting very tight with distributing funds and they consider student and parent loans to be Financial Aid!
I live in one of the bottom 5 public education states. I have occaision to be in public schools often by the nature of my job. As a result, I scrimp and work a second job in order for my child not to have to go to the public schools here - I actually want her to learn in an environment where scholarship is respected and celebrated, where adults are treated with the respect due their age and authority, where everyone knows each child's name, where classes are about knowledge and not just prepping for a high stakes test and certain types of behavior do not have to be tolerated when those behaviors impede everyone's learning.
I knew early on that my child would not be able to function in a classroom with a high student-to-teacher ratio and significant disruption occuring. And even though the local educational authority is REQUIRED to provide each child with a Free, Appropriate Program of Education (FAPE) they will go down in flames insisting that that is not what your child requires. It just wasn't worth it to try and fight, because meantime, my child would be losing crucial early learning.
In my case, paying high tuition at a high school means my child is safe. The public schools in my area are just too open to violence. My children are too important to me to trust schools that have metal detectors at the entrance and police cars parked in front. So for me, it's either pay that tuition or try to sell my home and move to a different town which just isn't an option since my husband died.
And for those saying find a good school district, ours was good up until that no child left behind stuff came along. Since then, it's keep every kid in school no matter how disruptive or violent. We had our mayor actually escort students that had been suspended for fighting (I think one had a knife)back into school so they could do even more damage and upset to the kids that really want to learn.
There are experts we can go to and one of them would be the Finland school system. You can't fix stupid and our school system has been made stupid. The ONLY way to stop this stupidity is to tear it down and start over and Finland is a great place to copy.
This article is just showing one MORE way Americans are getting screwed.
Something in the system is really broken bad. Home schooling looks like the best option to save money and not go into debt with the banksters.
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