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Published April 29, 2008

Whether you are a parent looking to send your child to a private k-12 school, or your child is currently enrolled in one, you are probably exploring your options for how to pay for tuition and the other costs associated with a k-12 school. The following information will guide you as you consider the many loan program options available to help you pay for your child's private education.

 

Tuition Planning

Advanced planning is your best option for financing a private school education. The first step in planning for education financing is to contact the admissions or business office at your child's current or prospective school. The financial aid officers at the school can help you learn about available financing options.

Today, a large number of private school students receive financial aid. Many schools offer financial aid in the form of merit awards and need-based scholarships. Based on eligibility, these awards can help make a private school education more affordable. Financial aid grants may cover a significant portion of your child's tuition depending on the school and eligibility.

About Private Student Loans

In addition to scholarships and grants, there is another valuable resource to help you pay for your child's education, particularly when grants and scholarships don't cover all the costs. In the past fifteen years, the emergence of private k-12 education loans has made all types of private school education more accessible. Private student loans are an excellent option that will help you avoid dipping into savings or using high-interest products like credit cards. These loan products, many of which are credit-based, can help you spread out tuition payments and make financing tuition more manageable.

Should you decide to finance your child's education with a private k-12 education loan, there are a number of things to consider before making your final decision. For starters, it is critical that you research and understand the terms of the loan. Terms of a loan include the interest rate, repayment schedule, and Annual Percentage Rate (APR).

Interest rates and fees vary based on the type of loan you receive. Some lenders have products that offer different interest rates based on the borrower's credit history and score. Other lenders offer a flat rate for every approved borrower. Many loan programs may also include an origination fee. This fee may be an out-of-pocket fee or it may be included in the principal of the loan.

Repayment terms and deferment options (when available) also differ between private loan programs. Some loans begin repayment immediately following the school's cashing of the loan check. Others might provide a deferment period during which no payments are required. Some private loan programs allow a borrower to pre-pay the loan without penalty, while others charge a fee if you decide to pay off your loan before the end of the repayment period.

The most important metric when comparing and choosing the right private loan is the APR. The APR, or Annual Percentage Rate, represents the annual cost of your loan and is affected by the loan's interest rate, origination fee (if any), and repayment and deferment terms. Be sure to review all aspects of the assumptions and loan terms used in an APR calculation to ensure a true "apples to apples" comparison among loan options.

Questions To Ask When Choosing a Private School Loan

What should you look for in a private school loan? Consider the following criteria when evaluating your private loan options:

Annual Percentage Rate (APR)

What is the APR on the loan? The APR is the effective interest rate when all finance charges and up-front fees are included. The APR on a loan can vary among lenders because of differences in up-front fees, even if the interest rates are the same. The term of the loan and repayment terms can also affect the APR.

Preliminary Approval

Do you want to know quickly if you qualify? Does the lender offer loan preliminary approval over the phone or Internet?

Repayment Options

When does repayment begin? Be sure to be aware of when you must begin repaying the loan.

Returning your loan documents

Does the application process allow you to print the Credit Agreement and return it by fax?

Repayment Period

How long is the repayment period for the loan? If the cost of your child's tuition requires you to borrow large amounts, you may need a longer time to repay the loan. While this will lower your monthly payments, it will increase the aggregate finance charge you pay for the loan.

Loan Limits

Is there a maximum amount you can borrow? Does the loan have an annual or aggregate limit? Will these limits meet your needs? It's a good idea to borrow from the same lender each year, so make sure the lifetime aggregate loan limit is high enough to cover the tuition costs throughout your child's entire education.

Interest Capitalization

Be sure to look at how often your loan's deferred interest may be capitalized (added to your principal balance). When is the interest added? Annually? At repayment? If the interest is capitalized annually, the loan is more expensive than if interest is capitalized only once at the time your loan enters repayment.

Service

What is the application process? Is preliminary approval offered? Is the application Web-based? How does that fit into your school's processes? What are the delivery options for funds? Can you access and view account information on the loan? Can the lender/servicer offer combined billing of all your educational loans?

Servicer

Does your lender sell their loans to another entity? Some lenders sell their loans to a third party servicer; others retain ownership throughout the life of the loan. Ideally you want a lender that services its own loans. If your loans are sold, all future correspondence should be sent to the new owner of your loan.

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