Should I pay for my child’s private school tuition with a personal loan?

If you’ve considered sending your child to a private K-12 institution and experienced immediate sticker shock, you’re not alone. In 2023, the average total cost for a private K-12 education is $441,207, with an average annual tuition of $23,839.

For families aiming for private education without having the necessary funds readily available, financial resources and tools, such as personal loans, can help bridge the financing gap.

However, with inflation and record-breaking interest rates, you might wonder if a personal loan is the best option to pay for a year’s tuition upfront. The answer depends on your credit situation and the financial aid offerings of the school.

With back-to-school season upon us, I researched private schools in my area and reached out to their financial aid offices to understand the costs and available financial aid options.

As a former student loans reporter, I was surprised by what I discovered. Most private schools have tuition costs higher than a semester of my college education, and there isn’t a universal financing option for K-12 students like there is for private college students.

Unlike college, private K-12 education can’t be financed through federal or private student loans. Instead, financial aid is often available through state grants or each school’s financial aid office, typically funded by donors and offered to those who qualify. Some schools provide payment plans or reduced tuition programs, but these options vary.

While these options can help initially, if financial aid falls short or you need extra funds to make the monthly payments, you might need to consider other financing options to cover the remaining costs.

In short, yes, you can use a personal loan to finance a private school education, but it depends on the lender. Some lenders, like LightStream, offer loans specifically for K-12 education, while others have restrictions on how the loan funds can be used. Although it’s uncommon, some lenders might not allow their loans to be used for any educational expenses, including K-12 tuition.

Before applying, review the lender’s terms and conditions on their website to ensure the loan can be used for education-related costs. Additionally, it’s a good idea to call the customer service department to confirm. Some lenders explicitly prohibit using personal loans for private college-related expenses, so it’s essential to verify that this restriction does not extend to all private education costs before you apply.

As the first day of school approaches, parents, especially those enrolling their children in private school, often find themselves scrambling to prepare for the year ahead. While the application process, financial aid discussions, and disbursements usually happen well before the end of summer, sometimes a last-minute financial resource is needed.

For instance, if a last-minute opening becomes available at your child’s school and they are at the top of the waiting list, a personal loan might be a viable option. However, considering the current high interest rates, it’s wise to explore all other alternatives first. If you have an excellent credit score, you might secure a lower interest rate on a personal loan, making it a more feasible solution.

According to a Bankrate study, personal loan rates averaged 12.20 percent as of May 15, 2024.

To combat rising inflation, the Federal Reserve increased the federal funds rate several times throughout 2022 and 2023, making it costlier for financial institutions to lend money and resulting in higher rates for borrowers. However, experts anticipate that the Federal Reserve will begin lowering rates in 2024.

The rate you qualify for depends on your creditworthiness, including your credit score, credit history, and repayment behavior. Although rates may still be higher than if you waited for them to decrease, those with excellent credit scores will secure the most competitive rates.

Once you’ve exhausted all scholarship and grant options, 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 for 12 to 18 months.

This option is only advisable if you can feasibly pay off the entire balance within the 0 percent period. Otherwise, you’ll end up paying a much higher interest rate than you would likely face with a loan.

If you decide to pursue a loan, prequalify with as many personal loan lenders as possible before applying. Prequalification allows you to check your predicted rate without impacting your credit score. This makes it easier to compare lenders and find the one that best meets your needs and offers the most favorable rate.

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

While a personal loan can be a viable last-resort option for financing private school, it shouldn’t be your first consideration. Fortunately, there are several options to explore before taking on more debt:

  • Financial Aid: Many schools offer financial aid based on a family’s income, assets, and specific circumstances like medical expenses. Since offerings and programs vary by school, apply as early as possible, as most operate on a “first come, first served” basis.
  • 529 Plan: Although primarily intended for post-secondary education, a 529 plan can sometimes be used for K-12 education, depending on state regulations. If your state doesn’t allow it, you may need to repay any state tax deductions claimed with the plan.
  • Scholarships and Grants: Private school scholarships and grants for K-12 students are available at state, local, and non-profit levels. Additionally, some schools offer internal scholarships, often on a “first come, first served” basis.
  • Payment Plans: Many private schools provide payment plans that spread tuition costs into multiple installments rather than one or two large payments. Be mindful that some plans may be offered through third-party companies and may include extra fees, so review the terms and conditions carefully before committing.