Should I Use A Personal Loan To Pay For My Child’s Private School?

If you’ve considered sending your child to a private K-12 institution and have gotten immediate sticker-shock, you’re not alone. The average annual cost for private school K-12 education is over $15,000 — that means you could pay close to $200,000 in tuition costs for your child’s schooling.

If you don’t have that kind of money on hand, there are financial resources and tools that can be used to fill financing gaps, like personal loans. But whether you should use a personal loan to cover your child’s private school tuition depends on many factors, including your credit history and your school’s financial aid offerings.

Are there loans specifically for private school?

Unlike college, you can’t finance private K-12 education with federal or private student loans. Rather, financial aid can be found 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 those options are also school-dependent.

While these options may help initially, if the financial aid falls short or you find yourself needing an extra boost to make the monthly payments, it may be necessary to look into financing the remaining costs.

Can I use a personal loan to pay for private school?

Yes, you can use a personal loan to finance a private school education. While some lenders, like LightStream, offer loans specifically for a K-12 education, you can use any personal loan toward K-12 education costs as long as the lender doesn’t specifically prohibit it.

Before applying, check the lender’s terms and conditions to make sure the loan can be used for education-related expenses. You can also call the customer service department to confirm. Some lenders prohibit personal loan use for private collegiate-related costs, so it’s best to clarify that this doesn’t apply to all private education before applying.

Is it a good time to take out a personal loan to pay for school?

While the school application process, financial aid discussions and disbursements typically occur well before the end of summer, there are situations in which a last-minute financial resource is necessary.

For example, a personal loan may be a good option if there’s a last-minute opening in your child’s school and you need to scramble to arrange funding. However, personal loan rates can be high — sometimes rivaling credit card interest rates — so it may be best to consider every alternative available before landing on a personal loan. If you have top-notch credit scores, you may qualify for a low rate with an excellent-credit personal loan.

Personal loan interest rates hit all-time high

The current average personal loan rate is above 12 percent. If you can snag a personal loan rate below that benchmark, this type of funding could be a good way to pay for your child’s K-12 private education. But if you have bad credit, you may receive a rate as high as 36 percent, making borrowing very expensive.

Your creditworthiness — your credit score, credit history and previous repayment behavior — determines the rate you qualify for. Whether rates remain high or begin to fall, taking steps to improve your credit score can help you qualify for the best rate possible.

What to know about personal loans before you borrow

If you’ve decided to borrow a personal loan, prequalify with as many personal loan lenders as possible before formally applying. Prequalifying for a personal loan allows you to compare rates and terms from multiple lenders without harming your score, though it doesn’t guarantee approval.

Personal loans are disbursed in a lump sum amount typically within a week, so make sure to coordinate with the school’s financial aid office if this timeline falls outside the payment window.

Example: Let’s say your child’s private school tuition is close to the national average of $15,000. Your excellent credit helps you qualify for a below-average rate of 10 percent. While you can choose a personal loan repayment term as long as seven years, it doesn’t make sense to take on a multi-year debt for a single year’s tuition.

Over the course of a 12-month repayment term, you’ll pay over $800 in interest. While a two-year term results in a lower monthly payment, you’ll pay twice as much in overall interest and will still be repaying the loan after the school year ends.

Other ways to pay for private school

While a personal loan is a good last-resort option, it shouldn’t be the first consideration when paying for private school, especially if you don’t have exceptional credit. Review the following options before taking on more debt.

• Financial aid: Some schools offer financial aid based on a family’s income compared to the yearly tuition costs. While every school differs in offerings and programs, it’s best to apply as early as possible, as most schools operate on a “first come, first served” basis.
• 529 plan: While a 529 plan is aimed at funding your child’s post-secondary education, you may still be able to use it for a K-12 education. But eligibility varies by state — if you use a 529 on K-12 tuition and your state doesn’t allow it, you’ll have to repay any state tax deductions you filed with the plan.
• Scholarships and grants: There are private school scholarships and grants for K-12 at the state, local and nonprofit levels. There may even be scholarships available within the school’s financial aid office, although these will likely be offered on a ‘first come, first serve’ basis.
• Payment plans: Many private schools offer payment plans that break up the cost of tuition into multiple installments versus one to two larger payments. Be aware that sometimes these may be offered through third-party companies and some may charge extra fees, so comb through the terms and conditions before signing on to a payment plan.
• 0 percent APR credit card: If you have good credit, you may qualify for a credit card with an introductory interest-free period. As long as you repay the full balance before the end of the promotional period (typically 12 to 21 months), you can avoid paying interest. But beware: Any balance that remains at the end of the intro period is subject to interest, and rates can be high. Only consider this option if you’re certain you can zero your balance before the promo period ends.

Bottom line

In many cases, personal loans can be used as K-12 education loans. Approval and funding typically only takes a few days, and rates for borrowers with excellent credit may be as low as 7 percent. But if you don’t qualify for a competitive rate, you could end up paying a hefty sum in interest — as much as 36 percent APR.

Before you take out a personal loan to pay for your child’s K-12 education, consider more sustainable alternatives, like tapping a 529 account or requesting a flexible payment plan. If you decide that taking out a personal loan is the best move for you, compare rates and terms from at least three lenders to get the best deal for your circumstances.