For most American parents, sending a child to college is a stretch. This explains why a college education is right up there with retirement as one of the major life goals that require careful financial planning.

So what happens when you add on the goal of sending your child to a private school before they even go to college?  Tuition and room & board at many elite private schools give college fees a literal run for the money. Even private schools that are not so exclusive, like parochial schools, can cost approximately $10,000 per year. Arguably, if you are a homeowner, you should gross up this figure by the amount of your property taxes that fund your local public schools since you’re paying for a benefit you will not be receiving.

What’s more, the planning horizon for private school costs is shorter than that for college. In some small instances, private school is a last-minute choice when the public school option becomes unacceptable. This makes it much harder to save or invest for this goal.

But the final straw is that financing options are much more limited for private schools.  Your high school freshman will not be eligible for a subsidized government loan, unlike most college students.  If you need to borrow to send him or her to a private elementary or high school, the debt will be entirely yours, with no 20-year payment plan. 

Given these goal-busters, it is perhaps surprising that nearly 10 percent of American school children attend private schools, and that these institutions represent nearly a quarter of U.S.  elementary and secondary schools, according to the National Center for Education Statistics.  Interesting, too, is the fact that the affluent – those with annual family incomes of $75,000 or more – are not significantly more likely to send their children to private school than the general population.  Eighty-seven percent of these families have one or more of their kids go public.

It appears that the private school decision is not just about affordability, but involves careful consideration of comparative value, as well as an understanding of opportunity costs.  Let’s look at what goes into these three factors:

Comparative Value:  Private schools can offer many advantages. Generally speaking, the student-teacher ratio is lower in private schools, and average SAT scores are higher.  Private school curricula tend to be more varied than the educational fare in the public school system, offering more arts and languages. For some parents, the freedom of religious-based schools is of fundamental importance to the way they wish to bring up their children.  Studies have also shown that gender-segregated private schools can be highly beneficial for achievement and confidence, particularly for girls.

However, for parents who want their children to experience racial and ethnic diversity as part of their educational experience, public schools generally score higher on this dimension.

Opportunity Costs:  To say that private schooling isn’t free is more than a truism.  Beyond the actual outlays, there are also the “costs” of other financial goals or lifestyles that may be negatively impacted when you send your child to private school.  

For example, you may need to delay retirement to replace funds diverted from retirement savings to paying for private school tuition.  Your life and disability insurance needs may increase, to ensure that the additional expense of private school can be met in the event of your death or incapacity.  Vacation plans or car purchases may need to be modified; moving to another geographic area may be out of the question if you need to stay in the vicinity of the private school. 

Affordability:  Despite the limited financing options available for public schools, there are nevertheless ways that parents can reduce or manage the costs: 

  • Coverdell Education Savings Accounts (CESA):Like 529 plans, CESAs allow parents or grandparents to save for educational costs on a tax-deferred basis.  Unlike 529s, the allowable annual contribution is much lower at $2,000 a year.  However, CESAs are available for elementary and secondary school costs. 
  • Custodial Accounts (UGMAs and UTMAs):As accounts funded by adults for transfer to a child upon reaching the age of majority, UGMAs and UTMAs are generally seen as vehicles for college savings.  There has been a lot of discussion as to whether parents can use these funds earlier in a child’s life for expenses considered to be parental obligations, such as education. A close reading of the legislation governing custodial accounts makes it clear that they can be used for private schooling.
  • Negotiating Tuition Payments:Some schools offer discounts on tuition when it is fully paid in advance; others allow spreading the payments over the year rather than requiring payment each semester.  There may be discounts for families sending more than one child to the school.  For families who are members of a church or religious organization that sponsors and runs its own school, discounts may also be available.  It’s okay to negotiate payments with the private school – think of them as your business partner in your child’s education.
  • Financial Aid Directly from the Private School:Many private schools offer scholarships based on need, and in some cases, community organizations or churches that support the school may have funds for deserving students.  Be sure to file the school’s Parents’ Financial Statement to determine eligibility.  Don’t be scared away if you believe you may be “too wealthy” for such aid.  Some private schools are actively courting more wealthy families by offering them assistance.
  • Loans/Aid from Outside Programs:  Sallie Mae offers a K-12 Family Education Loan at unpublished, but “competitive” interest rates. Another resource is Your Tuition Solution which offers pre-college education loans at fixed rates.  Be aware, however, that unlike federal college loans, these rates will not be subsidized and have much shorter repayment periods.
  • “Private” Education at Public School Cost: Parents with academically gifted children might consider International Baccalaureate (IB) Programs, housed in qualifying public schools.  Students must qualify for admission through testing and transcripts.  IB students are taught separately from other students, but enjoy the same benefits of extracurricular activities, sports programs, and even public transportation. 

Private school is a gift many parents wish to give their children that is as important – if not more so – as getting them into a great college.  But it is not an easy gift to make: it takes planning, setting priorities, and getting objective, competent advice from a CFP® professional who understands you, your family, and the future you wish to build.