Student Loans on Rise — for Kindergarten
Unable to afford private school, more parents are turning to loans years before their children start college.
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.
t used to be that families first signed up for education loans when their child enrolled in college, but a growing number of parents are seeking tuition assistance as soon as kindergarten. Though data is 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 to 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, reentered 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 sums of debt, 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 — 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.