Thinking About
Private School for Your Kids? The Earlier You Start the Better
Considering private
grammar and high school is a parent’s first introduction to a lifetime
of saving for a child’s education.
Depending on where
you live, you might face a decision to choose between private and public
schools, and there might not be much of a choice. It’s an expensive
proposition made even more complicated by the fact that you have to save
for college at the same time. Some are able to pay for private school
today plus save for college. For others they may have to plan on ‘paying
as they go’ for all schooling – today and for college.
How do parents make
it work? Some have the money to make anything work, but for those who don’t,
it’s essential to plan from the time your child is very young. From the
beginning, keep abreast of every possible resource for scholarships,
discounts, loan programs and other forms of financial aid.
It makes sense to
find a financial planner, such as a CERTIFIED FINANCIAL PLANNER™
professional, who can link a child’s pre-college education planning to
the financial planning necessary for college, grad school and beyond. Here
are some ideas to start with:
How much? The
National Association of Independent Schools (NAIS), a national
organization representing private pre-schools, elementary and secondary
schools, estimates that the median tuition in 2006-07 for all grades of
private day schools was $15,894. For boarding school, the price is almost
double.
How much aid?
A little more than 18 percent of all private school students are receiving
some form of aid at an average grant of $10,871. Financial aid grants for
private elementary and secondary schools works roughly the same as college
– they are awarded on the basis of need. Grants are the best form of
financial aid because they don’t have to be paid back.
Applying for aid:
Most schools use the Parents' Financial Statement (PFS) from the School
and Student
Service for Financial Aid (SSS). This is a service owned by NAIS that
helps schools determine how much a family can afford to pay for school
tuition and other educational expenses. If the school you are
considering does not use SSS, be sure to ask what steps you need to follow
in order to apply for assistance. The form considers how many children you’re
paying tuition for in K-12 or college and how high the cost of living is
in your area.
Don’t forget to
plan for retirement: You’ll do anything for your kids, but you have
to pay yourself first. Talk to a financial planner to see how much you’ll
need in retirement and how much you’ll need to save weekly to make that
goal. Keep in mind that your greatest potential for a successful
retirement comes from starting savings early and you can’t forfeit that
in favor of your child’s education.
Consider a Coverdell
Account: This is not a
universal recommendation because some families may benefit more from
savings plans customized to their situation. Coverdell Education Savings
Accounts – formerly known as education IRAs – are trusts created to
save money for a child’s primary, secondary or college education.
Contributions are relatively small -- $2,000 per beneficiary from all
sources during the year – though there may be exceptions for certain
types of rollovers. Yet since Coverdell Education Savings Accounts are
considered the asset of the account owner, you may want to keep it in your
name since an account in the student’s name could adversely affect
financial aid eligibility.
Enlist the
grandparents: If your
parents can afford to help, they have several options to help you save for
your child’s education without triggering their gift tax obligation.
First, each grandparent can give up to $12,000 tax-free to each child or
they can give money up to any amount directly to the school without
triggering the gift tax. Also, they can give up to $2,000 annually to a
Coverdell account you’ve set up for the child. For college, they can
also gift money to a 529 College Savings Plan or a Uniform Transfers to
Minors Act (UTMA) account for your child.
Don’t use debt as a Band-Aid: Avoid
the trap of being forced to use debt while trying to "do it
all." Stay within your means. If you find yourself close to using
your debt options, enlist the help of a financial planner to talk through
ways to adjust your spending or find student aid.
June 2007— This column is
produced by the Financial Planning Association, the membership
organization for the financial planning community, and is provided by
McGuire & Co., LLC, a local member of the FPA.
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