The growing mountain of student loan debt we owe has been well-documented, but new research shows a trend that?s even more troubling than Americans going into hock to pay for a college degree: Apparently, some parents are taking out five-figure loans to finance private school tuition for K-12 kids. Yes, Student Loans even to pay for kindergarten.
This trend is more prevalent among more affluent parents, according to SmartMoney.com , which dug up some alarming stats on the practice. One prominent player in the market, a company called Your Tuition Solution, reports a 10% year-over-year increase in demand for pre-college loans.
Experts confirm evidence supporting an increase in pre-college lending.?We created the PrivateSchools.com site a few years ago as a spin-off from FinAid because we were receiving an increasing number of requests from parents for information about scholarships (vouchers) and loans for private K-12 education for their children,? Mark Kantrowitz, publisher of college financial aid sitesPublisher of Fastweb.com and FinAid.org, says via email.
( MORE: Students, Your Loan Interest Rate Is About to Double )
Whilethe kids might be pint-sized, the bills are anything but.Your Tuition Solution?s average loan amount is $14,000. That?s practically austere next to another pre-college loan provider, Marblehead, which will extend loans to families of up to $30,000 a year, according to SmartMoney. The interest rates on these debts ranges from 4% all the way up to 20% ? several percentage points higher than the average credit card APR.
As in higher education, the cost of private elementary and high school has skyrocketed in recent years, up 6% in the past year alone and 26% over the past five years, according to SmartMoney. Parents who think private school is the key to getting their kid into a competitive college might feel they have no choice but to sign off on increasingly large loans.
( MORE: Why the Student Loan Situation Is Worse Than We Thought )
Unfortunately, this assumption is mistaken. ?While private K-12 students do win more scholarships, it?s not enough to compensate for the cost of private K-12 tuition,? Kantrowitz says. Private school students eek out a mere $1,000 more merit-based aid, on average, than their public school counterparts. And private high school students go on to attend more expensive private colleges at a higher rate than those who attend public schools, who are more likely to attend public institutions.
Given that, on average, a four-year degree at a private, non-profit college costs about $4,000 more than the same degree at a public school, this admission pattern more than cancels out the additional aid private high-school students earn.
Unlike college education, which students and their families can finance with federal student loans, the elementary and high school loan market is private. Consumer advocates say this largely unregulated market leaves students and their families vulnerable to abuses like punitive terms and little in the way of forgiveness or forbearance.
Tags: student loans
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