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.
Friday, March 30, 2012
Smart Money Mag: Student Loans for K-12
It isn't new news that Orthodox parents have been financing private K-12 education (usually via home equity lines of credit), but this Smart Money article, sent to me by another wonderful reader, outlines the newest loan industry, K-12 loans.
Personally, I'm just not that committed to private schooling to take out pre-college loans. I'm not convinced that college loans are an "investment" worth making in many cases. It goes without saying that I'm not going to favor student loans for the K-12 set.
The article states that most of the demand is coming from high-income parents (i.e. $150,000).
This does not surprise me a bit. Being that it is tax season, I'm once again reminded that when you hit the $110,000 mark, some valuable credits like the child tax credit start being reduced and by $150,000 (!), these credits are other valuable losses that can reduce taxable income are long gone or limited in their entirety.
At $150,000 there is a large tax burden, a full tuition bill, and not a chance at aid, grants, scholarships. So, to loans such parents turn.
Besides the risk that loans entail, the entire idea of taking a K-12 loan in order to increase the chances of getting into a better college is upside down. What happens if the parents can't take on anymore debt? The kids will end up with less college opportunity.
Something interesting which I've pointed out on my blog before, paying private school tuition over 10 months, which is default in Orthodox Jewish schools, is NOT standard in private schools. Some schools, as you can see below, claim a 10 month plan is a "financing" plan and they charge a hefty sum of money to help you finance over 10 months. We'd run into ribbit issues, but it is still good to remember that paying over 10 months is a gift of sorts.
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 -- and that's 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, northeast regional director for the NAIS' School and Student Services, which processes families' financial aid applications to private schools.
Student Loans for K-12 in book equal a lot of risk and little benefit. . . . . .you can't even deduct the interest repayments to reduce your taxes, making the other financing "solution" of a HELOC look like a smart idea, although none of the above is smart in my book.