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Financial Aid for Private Elementary and Secondary Schools Private elementary, middle and secondary schools (K-12) are an attractive or necessary option for some students. However, they can be as expensive as college, with annual tuitions in the tens of thousands of dollars. Financial aid for students attending private schools is scarce, but not impossible to acquire. Most such aid is provided by the schools themselves, so parents should contact the school and see if they offer any scholarships or other aid. The school will also know about any private scholarships received by their students in the past. Private schools may offer a variety of financing options. The options include tuition payment plans and education loans. These allow you to stretch out the tuition payments over up to a year or longer. You should also ask the school whether they offer a cash discount for paying the tuition in full by the due date. Again, the best source of information about financial aid for private schools is the schools themselves. Coverdell Education Savings Accounts may be used to save for K-12 education in addition to college. This allows families to save for a private school education in a tax advantaged manner. If you also have children enrolled in college, you should ask their college financial aid administrators to use "professional judgment" to make an adjustment for the private school tuition you paid for your other children. Some schools call this a "special circumstances" review. (You should also mention any other unusual aspects of your family's finances.) This can increase the college student's financial aid package by decreasing the discretionary income figure used by the need analysis formula. Scholarship Programs FinAid maintains a separate list of K-12 scholarship and voucher programs for private and parochial schools. The list includes large national scholarship programs, such as the Children's Scholarship Fund and Jack Kent Cooke Foundation Young Scholars Program, as well as dozens of regional private scholarship programs. It also summarizes state K-12 education tax deductions and credits and state-funded voucher programs, including state corporate income tax credits. Need Assessment Companies The following companies are used by some of the need-based scholarship and voucher programs to evaluate financial need. Other programs may use FinAid's QuickEFC Calculator, which is available free of charge.
Tuition Payment Plans Tuition payment plans, also known as billing plans, allow families to spread the tuition payments over several months. In effect, these payment plans offer cash-flow assistance.The most common types of tuition payment plans are academic year plans, which split the tuition bill into 9 or 10 equal monthly payments. Although these plans do not charge interest, they usually charge a flat fee, which is effectively a form of prepaid interest. For example, a $100 fee on $10,000 in tuition paid over a period of 9 months is the equivalent of 1.4% interest. If paid over a four month period, it is the equivalent of 3.3% interest. The following table illustrates the equivalent interest rates on $10,000 in tuition for a variety of fee amounts.
FinAid's Upfront Fee Equivalent Interest calculator can be used to determine the equivalent interest rates for other tuition and fee amounts and repayment terms. Some schools may require the family to pay for tuition insurance, which will increase the balance by 1% to 2%.
Education Loans There are two types of education loans: fixed rate education loans and variable rate education loans. Loan terms for fixed rate loans are typically 1 to 5 years, similar in structure to automobile loans. Loan terms for variable rate loans are typically 10 years, although some loans are available with terms of up to 20 years. Most education loans charge an origination or guarantee fee of up to 6%. These fees are deducted from the disbursement checks. Shorter-term fixed rate loans often do not charge origination and guarantee fees, but instead factor them into the interest rate. (A 6% origination fee on a $10,000 loan with a 10-year repayment term is the equivalent of a 1% higher interest rate with no origination fee. On a 5-year repayment term it is the equivalent of a 2% higher interest rate.) Interest rates may also be higher for borrowers with a history of credit problems. FinAid maintains a list of education loans for private school.When selecting a loan, parents should consider the total amount of interest paid over the lifetime of a loan. A longer term loan may have lower monthly payments, but the total amount of interest paid will be higher. A loan with a higher interest rate and fees will also be more expensive. FinAid has a loan payments calculator you can use to calculate the amount of interest paid over the lifetime of the loan. There are also other calculators you can use to evaluate the tradeoff between interest rates and fees. Parents should also ask whether the loan allows prepayment without penalty. Given that the student and parents will likely be borrowing money for college, it is not a good idea to incur additional long-term debt for a private secondary school. Alternatives to Education Loans and Payment Plans Alternatives to education loans include home equity loans, home equity lines of credit, credit cards, and personal loans. Home equity loans typically have fixed interest rates while home equity lines of credit typically have variable interest rates. Another difference is one only pays interest on the portion of a home equity line of credit that is actually used. A potential benefit of a home equity loan or line of credit is the interest may be tax deductible. Credit cards usually have much higher interest rates than home equity loans and lines of credit. If the school does not accept credit cards, one will have to use a cash advance to make the payment. Cash advances often have even higher interest rates. Most credit cards use variable interest rates. Personal loans are available from your local bank. These are unsecured installment loans and are only available to creditworthy borrowers. The best interest rates are available to borrowers with excellent credit, and are slightly lower than the best credit card interest rates. Personal loans may be available with fixed or variable rates, depending on the bank. Books There is only one book that focuses on financial aid for private schools, although it is more than ten years old:
Laurie Blum, Free Money for Private Schools, Peterson's publishes a book about private schools that includes a chapter about paying for a private education. This book is more up-to-date.
Peterson's Private Secondary Schools 2005.
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