If you’ve considered sending your child to a private K-12 institution and are immediately experiencing sticker shock, you’re not alone. In 2023, the average tuition costs for a private school in primary and secondary education will be $441,207where $23,839 is the average annual cost.
For those who have their sights set on private education for their child and don’t have that kind of money, there are financial resources and tools that can be used to fill financing gaps, such as personal loans.
However, inflation and record-breaking interest rates may have you wondering whether a personal loan is the best option to pay for the entire year’s tuition at once. The answer? It depends on your credit situation and the school’s financial aid offer.
Are there loans specifically for private schools?
Since it’s back to school, I did some research on the private schools in my area and contacted financial aid offices to dig deeper into costs and see what type of financial aid is offered.
As a former student loan reporter, what I discovered was surprising. While most of them boast higher tuition costs than the cost of a semester of my college education, there doesn’t seem to be a universal financing option for K-12 education like there is for private students.
Unlike college, private K-12 education cannot be financed through federal or private student loans. Instead, financial aid may be offered through state grants or through each school’s financial aid office. These funds are typically donor-based and offered to those who qualify. Others may offer payment plans or reduced tuition programs, although these options also depend on the school.
While these options may help initially, you may need to look into financing the remaining costs if financial assistance falls short or you find you need an extra boost to make the monthly payments.
Can I use a personal loan to pay for private school?
In short, yes. With a personal loan you can finance a private school education; however, it depends on the lender. While some offer loans specifically for K-12 education – like LightStream – some have provisions on what borrowers can spend their loan balance on. While unlikely for most, some may not allow the money to be used for education costs in general, including primary and secondary education.
Before applying, check the lender’s terms and conditions page on the website to ensure the loan can be used for education-related expenses. You can also call customer service to confirm this. Some lenders prohibit the use of personal loans for private collegiate costs, so it’s best to clarify that this doesn’t apply to all private education before you apply.
Is it a good time to take out a personal loan to pay for school expenses?
For those still awaiting the first day of school, it can be a struggle for parents as they prepare for the year ahead – especially those who are enrolling their child (or children) in a private school. Although the application process, financial aid discussions, and disbursements typically occur well before the end of the summer, there are situations where last-minute financial resources are needed.
For example, a personal loan can be a good option if a vacancy opens up at your child’s school at the last minute and your child is first on the waiting list. However, if at all possible, it may be best to explore every available alternative due to today’s high interest rates. You may also be able to get a lower rate if you have an excellent credit score.
Interest rates on personal loans reached a record high
According to a survey by Bankrate, the interest rate on personal loans averages 12.21 percent as of April 17, 2024.
To cool rising inflation, the Federal Reserve has raised the federal funds rate several times in 2023 and 2023. This made it more expensive for financial institutions to lend, leading to higher interest rates for borrowers. However, observers believe that the Federal Reserve will start cutting rates in 2024.
Your credit score (your score, credit history, and previous repayment behavior) determines the rate you qualify for. While it will likely still be higher than if you applied for a personal loan when rates eventually drop, those with better credit scores will receive the most competitive rates.
When should you take out a personal loan for school?
Once you have exhausted all your scholarship and grant options, you may want to consider financing your child’s education. Before turning to a loan, look into a 0 percent APR credit card, which offers an introductory 0 percent interest period, typically from about 12 to 18 months.
However, this is only a good idea if you can feasibly pay off the entire balance within the 0 percent period. Otherwise, you will end up paying a much higher interest rate than you probably would with a loan.
If you’ve decided to go the loan route, pre-qualify with as many personal loan lenders as possible before applying. Pre-qualifying allows you to check your predicted rate before you apply without impacting your credit score. From there, you can more easily compare lenders to find the one that meets your needs and offers the best rate.
Personal loans are typically disbursed in a lump sum within a week, so be sure to check with the school’s financial aid office if this timeline falls outside the payment deadline.
Alternative Ways to Pay for Private School
While a personal loan is a good last option, it should not be the first consideration when paying for private school. Fortunately, there are plenty of options available to you before taking on more debt.
- Financial help: Some schools offer financial aid based on family income, compared to annual tuition costs, assets, or even emergency or extenuating expenses such as medical expenses. Although each school will vary in offering and programs, it is best to apply as early as possible as most schools are likely to operate on a first-come, first-served basis.
- 529 subscription: Although a 529 plan is intended to fund your child’s postsecondary education, you may still be able to use it for primary and secondary education. However, this varies from state to state. If you use a 529 on K-12 and your state doesn’t allow it, you’ll have to pay back any state tax deductions you filed with the plan.
- Scholarships and subsidies: There are private schools scholarships and grants for K-12 at the state, local, and nonprofit levels. There may even be some scholarships available within the school’s financial aid office, although these will likely be offered on a first-come, first-served basis.
- Payment plans: Many private schools offer payment plans that split the cost of tuition into multiple installments instead of one to two larger payments. Please note that these are sometimes offered through third party companies and some may charge additional fees. So read the terms and conditions before signing up for a payment plan.
