Maneuvering Through The MAZE

According to the U.S. Department of Education, just over 10 percent of

American children

attend a private school.

And behind each of those children is a family that is paying an annual tuition, which can be as high as $30,000 the equivalent of

year of college education.

Families don’t do it on their own. They rely on financial aid, scholarships and loans to pay for what many say is the most important investment they can make: an investment in their child’s education.

Planning & Saving

These days, most parents start paying for school when their children are very young preschool and kindergarten programs require paying tuition or fees.

It’s amazing how many people are shocked by the cost,” said George Padula, president of Danforth Associates, a Wellesley financial planning firm. The key to planning for education

to start saving early. “The longer you wait, the tougher

is going to be,” Padula said.

The most traditional method of saving is the Coverdell Education Savings Account, formerly the Education IRA. Parents can contribute up to $2,000 a year. The deposits are not tax-deductible, but the money can be withdrawn tax-free to pay for education costs including tuition, room and board, or books and computers.

Parents should also consider Dependent Care Reimbursement Accounts, which most major employers offer, Padula said. A household can contribute up to $5,000 annually and the money can be used for any expense that benefits children up to age 13. Deposits are pre-tax, but the money is use-it-or-loseit each year.

Dependent care accounts are only allowed in situations where both parents have earned income. One-income families should take advantage of the Dependent Care Tax Credit available from the federal government. More information is available from the IRS (Publication #503, Child and Dependent Care Expense), available online at www.irs.gov.

Another option for saving is a custodial account, which permits parents to transfer assets to a child without opening a trust. For children under 14, the first $800 of income placed in a custodial account is tax-free, while the second $800 will be taxed at the child’s tax bracket. Deposits over $1,600 annually will be taxed at the parent’s tax rate. For children 14 and older, all deposits will be taxed at the child’s tax rate.

One note, custodial accounts belong to only one child and once the child on the account turns 21, any money in the account is theirs. An explanation of these accounts is available at www.fairmark. com/custacct/cust101.htm.

Padula warns that parents should not sacrifice their retirements to fund education. “That’s another case where time is on your side and the longer you wait, the more you lose out on,” he said. “You don’t want to sacrifice the future to pay for the present.”

Asking For Help

School financial aid officers are not enemies and should actually be a parent’s best ally. Because most private schools are interested in a diverse student population, financial aid counselors want to help, said Iris Bonet, director of admissions and financial aid at Bancroft School in Worcester. Twenty percent of the students at Bancroft receive some form of financial aid.

“The goal of our financial aid program is to make a Bancroft education available to as many bright and excited students as possible, so we strive to meet the need of as many of their families as possible,” Bonet explained. “Ask all of your questions, no question is too small.”

Maybe not surprisingly, the private school financial aid process mirrors the college financial aid process, with the majority of aid offered being based on need. Information like family income and expenses, family size and assets are used to calculate how much a family will be expected to pay.

The first step is to get the school’s financial aid forms; most schools use a third party vendor to determine a family’s situation and aid amounts. Forms must be filled out completely and often require copies of parents’ tax forms or other financial documents.

Parents should be aware of financial aid deadlines, as schools are working with a limited pot of money and may not have any more to give after deadline.

The amount of aid available varies from school to school, so parents should consider applying to more than one. Aid can vary based on tuition, endowments and the school’s financial aid philosophy, so a financial aid package at one school can be very different from another’s.

And parents need to remember the “aid” part of financial aid.

“The purpose of most financial aid programs is to close the gap between what you can afford and the price of tuition. Make sure that you’re realistic about what those numbers are likely to be,” Bonet said.

Loans Available

What is not covered through savings and aid, parents may have to cover in loans. This is one place where the process differs from the college financial aid routine. College loans, widely available, are backed and often subsidized by the federal government. Loan programs specifically for private school expenses are still scarce and unsecured personal or bank loans can come with double-digit and varying interest rates.

That is where one Framingham company aims to help. Premier Payment Solutions offers Your Tuition Solution, a fixed-rate private school tuition loan program. The program, which stemmed from the founder’s experience financing orthodontic procedures, aims to spread parents’ payments out on a schedule they’re comfortable with, which is often much longer than a school year, according to Michael Gilroy, a managing partner at Premier Payment Solutions.

Your Tuition Solution’s offers fixed rate (7.99 to 9.99 percent) loans with flexible terms from 12 to 60 months, Gilroy said. Schools get their tuition payments up front and parents know exactly what their monthly payments will be and for how long. Loans can be prepaid with no penalty.

“It’s a more comfortable type of loan,” Gilroy said. “We’re trying to replicate at the k-12 level what has been available at the college level for quite awhile.”

The company’s Web site, www.yourtuitionsolution. com, has complete details.

Traditional loan companies, including Sallie Mae, are getting into the K12 loan business. SLM Financial Corporation, a Sallie Mae company, offers loans to cover the full tuition, with interest rates starting at Prime plus 1%. These loans do have fees associated, and are usually much longer term, up to 20 years. For more information, visitwww.slmeducationloans.com.

Finally, parents should leave no stone unturned, if they are truly committed to investing in a private school education. Parents can take advantage of things like payment plans, which allow tuition payments to be spread over 8, 10, or 12 monthly payments instead of requiring payment at the start of each semester, and sibling discounts offered to families with more than one child enrolling. Some preschool or kindergarten programs may allow parents to volunteer their time at the school in return for some tuition help. Some private high schools offer work study for students to cover partial tuition.

“There are a lot of different reasons that parents decide on private school. Sometimes it’s for a high-quality education or the smaller classes and the alumni network,” Padula said. “The important thing is to plan early.”

Sarah MacDonald is a Massachusettsbased

freelance writer.