A Game Plan For Parents: Paying For Private SchoolSubmitted by Castlebar Asset Management on January 29th, 2015
Paying for private schools is a sacrifice for parents who choose the private school route. Some parents are able to find the money needed for tuition within in their current budget. Most simply figure it out by hanging on to cars longer, taking modest vacations or trimming extras from the family budget. Yet one in ten children in the US attend private K-12 schools each year. Figuring out how to pay for private schools can be a challenge for even affluent parents with the average cost for private school coming in at more than $9,970. Here are some of our suggestions on how to pay for private school.
Payment Plan: This is the most common way I see parents paying for private schools. Schools will often allow you to break your payments up into 8, 10 or 12 monthly installments. This does not help with the overall costs but can help break the payments down into more manageable chunks. Statistics show that only 17% of parents pay in lump sum leaving a large majority who take advantage of payment plans. The most popular type of payment plan is monthly with 44% choosing this option.
Negotiate: Repeat after me, no one pays sticker price! I tell this to all parents who have children approaching college and they fret after they see the cost. The same can be said for private schools. If you don’t ask for a discount or reduction in price you will never have shot of getting tuition reduced. The worst thing they can say is no. Some schools are rigid on price but most have some flexibility on pricing. There are progressive schools that offer something called indexed tuition. This adjusts the cost of tuition based on your income level. The more you earn the more you pay and vice versa. This is more popular on the coasts than in the Midwest right now.
Apply For Scholarships Or Grants: A majority of private schools offer a variety of in house scholarships to help defray the costs of tuition. You will have to start by filing a financial aid application with the school. Tuition assistance is also common particularly at parochial schools. In fact, my parish priest mentioned that some high schools in the Kansas City area had additional resources available because so few parents had applied for aid. Work-study or after school work programs are another way to have your son or daughter contribute towards their education.
Family Assistance: Grandparents, aunts or uncles may shower your children with gifts for their birthday and the holidays. Suggesting that they help with tuition might be a way they can show they care in a more tangible way. Grandparents who are looking to gift assets as an estate planning tool can pay all or part of the tuition bill without triggering any gift taxes as long as it is below a certain threshold. Many parents are timid about having this conservation but family is often willing to help with education expenses. It is best to have this conversation early even before your children start school.
Loans: Student loans are not often used as a way to pay for K-12 private school. It is far more common for loans to pay for college. Those parents who use loans to cover private school usually go in two directions. They either borrow against existing assets or they go through a bank or credit union. Tapping the equity in your home is one of the more common ways parents can use an existing asset to find low cost loans to cover the cost of private schools. The other avenue is getting a loan from a bank or credit union. You may pay a higher interest rate doing this but it cheaper than putting the tuition bill on your credit card and accruing a high rate of interest. I would generally advise against using loans unless it is a short-term solution.
Vouchers: These are only available in 13 states. They are an option but check out the National Association of State Legislatures for a state by state comparison.
Rewards Programs: One way to offset the cost tuition is to take advantage of rewards programs that offer benefits for doing your everyday spending. Many private schools participate in tuition reimbursement incentive programs (also called TRIP or SCRIP) that gives tuition reimbursement when you purchase gift cards through the school. These work when parents (or other family and friends) buy gift cards for participating gas stations, grocery stores or restaurants. The retailers then give a certain percentage of the gift card amount back to the school and the school passes the savings on to you in the form of tuition reduction. The amounts vary from five to ten percent. If you spend $800 a month on gas, groceries and eating out you could save between $40 and $80 on tuition.
Cash Payments: For those parents who are able to pay in one lump sum it is appropriate to ask for a paid in full discount. If your child’s school does not offer it, ask for a 5% to 10% discount anyway. This is a normal discount seen around the country. If you are feeling bold, see what kind of discount they will offer you to pay for multiple years in advance.
Plan Ahead: All of the options above are ways to “figure out” how to pay for private school while your children are in school. The only option available that offers any tax-deferred benefits is to use a Coverdell Education Savings Account. This will allow a parent or other family member to contribute up $2,000 each year per child. This money can be withdrawn tax free to pay for any educational expenses including private elementary or high school. This money can be invested and any withdrawals used on education expenses are not taxed. This plan is different from a 529 plan.
The game plan to pay for private school is usually a combination of several of the items talked about above. The challenge of providing the best education for your children is one many parent’s struggle with. Most parents sacrifice to figure it out. Hopefully your children will be grateful for all the hard work you put into their education.
Andrew Comstock, CFA
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.