Updated: Nov 23, 2020
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What motivates parents to choose a private elementary or secondary school for their children? Some parents like the idea of smaller class sizes and more personalized instruction. Others prefer their children to get an education in a religious environment or same-sex setting. But the perceived advantages of private school come at a cost.
For 2019-2020, private school tuition averaged $9,638 per year for elementary school and $14,522 per year for high school, Private School Review reports. Before you faint from sticker shock, know that there are plenty of ways to finance your child's private school education, including education savings accounts, financial aid, scholarships and loans.
Look Into Education Savings Accounts
If you already know you want your child to go to private school someday, you or other family members, such as grandparents, can plan ahead and open an education savings account early. The younger your child is when you open the account, the more time it will have to grow, and the more options you'll have for private school (or even college).
A Coverdell education savings account (ESA) is an account set up to pay education expenses for a designated beneficiary. The money can be used for qualified K-12 school expenses as well as for college. Contributions aren't tax-deductible, but when it's time to pay for school, the disbursements are tax-free as long as they don't exceed the child's qualified education expenses.
You can set up as many Coverdell accounts as you want for a particular beneficiary. Contributions to the account can come from anyone whose modified adjusted gross income (MAGI) is under the limit set for a given tax year (currently $110,000 for individuals or $220,000 if filing jointly). However, the total contribution to all accounts on behalf of that beneficiary can't exceed $2,000 annually. If your MAGI is between $95,000 and $110,000 (or between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced until it reaches the cap.
The $2,000 contribution limit means Coverdell ESAs are of limited use in paying for private school. Even if you had started saving when your child was born and maxed out your contribution each year, paying that average $9,638 tuition for the first year of private elementary school would essentially empty your account.
A 529 plan is a tax-advantaged investment account you can use to pay for qualifying educational costs. Like Coverdell ESAs, contributions to a 529 plan are not federally tax-deductible (but some states do allow it). Money can be withdrawn tax-free as long as it's used for qualified educational expenses within the plan limits.
Although 529 plans have historically been used to save for college, the Tax Cuts and Jobs Act of 2017 expanded their use to include K-12 tuition—up to $10,000 can be withdrawn annually. Notably, 529 plans don't have the same limits on contributions as Coverdell ESAs, which allows you to put more money into the plan. Contributors should consult a tax professional to make sure their contributions don't trigger gift taxes.
Compare the Schools in the Area
To budget for private school tuition, start by investigating private schools in your area. Make a shortlist of the ones you're interested in and research their tuition costs and related expenses. For example, some schools expect parents to make financial contributions on top of tuition or to volunteer for a certain number of hours. If doing that is not realistic for you, you'll need to look for a school that better fits your situation.
Find Out if Financial Aid Is Available
Many private schools offer financial aid to low- and middle-income families. Depending on your financial situation, you may qualify for help with some or all of the tuition costs. Even partial financial aid helps, so don't leave any money on the table.
Some schools also offer tuition discounts for families that have more than one child attending the school or belong to the house of worship affiliated with the school. Check into the school's financial aid application deadlines and find out if you'll need to reapply every year to receive the aid.
Learn About Scholarships
Scholarships aren't just for star students. They also may be available to students with financial need or students who meet other criteria. Ask the schools you're interested in what scholarships they offer and see if they can refer you to third-party organizations that have provided scholarships to their students in the past. For example, many community organizations, service organizations, religious communities and even large employers offer scholarships for K-12 students.
Your child also may be eligible to apply for many state and regional scholarship programs. For instance, the Black Student Fund provides K-12 financial assistance to black students in Maryland, Virginia and Washington, D.C. The AAA Scholarship Foundation provides income-based scholarships to pre-K through high school students in Arizona, Florida, Georgia and Nevada.
The National Association of Independent Schools' list of scholarships.
A Better Chance refers academically talented students of color entering grades four through nine to its member schools and helps them access scholarships and financial aid.
The Children's Scholarship Fund provides scholarships to K-8 children from low-income families.
Set Up a Payment Plan
Paying your child's annual tuition in one lump sum can be a daunting expense. Fortunately, most private schools offer payment plans you can use to split up tuition into quarterly or even monthly payments. This can make the cost more manageable and easier to fit into your budget. Find out if the schools on your list offer payment plans or are willing to set one up for you.
Consider a Loan
There are two kinds of loans you can use to pay private school tuition:
Education loans: Education loans let you borrow up to 100% of the school-certified cost of your child's K-12 private school education. These loans have variable interest rates, so your payments may rise or fall over the life of the loan.
Personal loans: Personal loans can be used for any purpose you choose, including K-12 tuition. However, personal loans can have higher interest rates than education loans, and some charge prepayment penalties if you pay off the loan early.
Interest and fee costs that come with loans add to private school's already high price tag. A 15% interest rate on a $10,000 student loan to cover just one year of private elementary school will ultimately cost you thousands in interest fees. If you're already struggling to afford private school, increasing the cost won't make things any easier.
Also keep in mind that repaying private school loans could drain funds that may be better spent saving or paying for your child's college education. You should carefully consider whether the rewards of a private school education outweigh that risk.
Make the Smart Choice
Using one or more of the methods above can help make it less painful to pay for private school. If you're considering an education loan or personal loan to help cover the cost of tuition, be sure to check your credit score first. If necessary, take steps to improve your credit habits and take actions that can have a positive impact on your credit score.