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Student Loans on Rise for Kindergarten

April 2, 2012 at 5:35 pm
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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.

It 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.

The rise in private school loans coincides with a rise in tuition. The average cost of private school is nearly $22,000 a year, up 4% from a year ago and up 26% from 2006-07, according to the NAIS. While schools increased their financial aid budgets, the gap between free aid and tuition costs is getting bigger for many parents. As a result, enrollment is dropping as fewer families can afford to pay. Total private school enrollment is projected at around 5.3 million this year, down 11% from 2007, according to the Department of Education.

Post Continues on smartmoney.com

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