How to pay for pri­vate school­ing

Do­ing re­search and bud­get­ing are crit­i­cal.

USA TODAY US Edition - - MONEY - Aimee Pic­chi Spe­cial to USA TO­DAY GETTY IMAGES

Par­ent­ing is known for de­liv­er­ing surprises – and that in­cludes the fi­nan­cial shock of ed­u­ca­tional costs that can be­gin as early as preschool.

Preschool pro­grams will set a fam­ily’s bud­get back by about $9,000 per year, ac­cord­ing to Child Care Aware of Amer­ica, a non­profit fo­cused on child care is­sues. Pri­vate K-12 ed­u­ca­tion also is costly, with ele­men­tary school and high school charg­ing an av­er­age of al­most $8,000 and $13,000, re­spec­tively. By com­par­i­son, the av­er­age an­nual tu­ition and fees for an in-state uni­ver­sity to­tals about $10,000 per year.

That means preschool alone can be as costly as col­lege for some par­ents. And those expenses may mount if a child en­rolls in a pri­vate K-12 school. Some par­ents in­ter­viewed by USA TO­DAY say they were blind­sided by these ed­u­ca­tional costs, espe­cially pre-K, be­cause free or low-cost pro­grams can be tough to find for young chil­dren.

“It’s some­thing that I felt I should have been aware of as some­one who works with lit­tle kids, but it’s noth­ing we thought about be­fore we had a child,” says Megan Estey But­ter­field, a chil­dren’s li­brar­ian who works in Burling­ton, Ver­mont, and is the mother of two boys, ages 4 years and 6 months. “The cost can be a strug­gle.”

Many par­ents are cop­ing with the fi­nan­cial pres­sures of pre-col­lege ed­u­ca­tion, says Jessie Doll, a wealth man­age­ment ad­viser at TIAA. Her ad­vice

is to assess your readi­ness to han­dle pre-col­lege ed­u­ca­tional costs by ask­ing three ques­tions:

❚ Do you have an emer­gency fund?

❚ Are you fund­ing your re­tire­ment?

❚ Do you have a col­lege sav­ings plan for your chil­dren?

❚ “If we don’t have those things solidly in place, then we don’t want to put the fam­ily’s fi­nan­cial fu­ture at risk,” Doll says.

Get bud­get­ing

Bud­get­ing is key for fig­ur­ing out how to bal­ance the cost of pri­vate school­ing. That’s be­cause it will help you zero in on spend­ing that can be trimmed, such as cut­ting back on eat­ing out, Doll adds.

“It’s re­ally fig­ur­ing out as a fam­ily, ‘How do we do this and not go into debt? What are my flex­i­ble areas of spend­ing?” Doll says.

She adds that she’s seen some poor ad­vice, such as rec­om­men­da­tions to tap credit

cards to pay for pre-col­lege tu­ition. Doll says it’s a bad idea be­cause of the high in­ter­est rates on credit cards and the po­ten­tial for get­ting into debt. Like­wise, don’t tap home eq­uity or re­tire­ment funds to pay for a child’s tu­ition. “Make sure to put on your own oxy­gen mask first,” she notes.

Do your re­search

Not every preschool or pri­vate school charges the same tu­ition, so it’s im­por­tant to do your re­search. In­ves­ti­gat­ing lo­cal preschools helped Leah Sel­vag­gio, a teacher in Gib­so­nia, Penn­syl­va­nia, find less ex­pen­sive child care for her twins. Be­fore find­ing the new school, she said she and her hus­band were pay­ing al­most $1,800 a month in costs, which they have now re­duced to about $1,100. Her ad­vice to soon-tobe par­ents: “Start sav­ing now.”

Pre-K fund­ing

Set­ting aside some money every month for pre-col­lege ed­u­ca­tional costs can help build a cush­ion for those expenses. If it’s avail­able through an em­ployer, con­sider set­ting up a de­pen­dent care flex­i­ble spend­ing ac­count, which al­lows you to set aside up to $5,000 in pre­tax dol­lars each year that can then be used for pre-K pro­grams and some other child care expenses.

There are a few catches with us­ing these plans, how­ever. For one, they can’t be used for pri­vate K-12 ed­u­ca­tion. Sec­ondly, if you don’t claim the money be­fore the re­im­burse­ment dead­line, you lose it.

Lastly, re­search whether your city and state of­fer pro­grams that sup­port uni­ver­sal pre-K. For in­stance, in Ver­mont, where But­ter­field lives, the state pays for chil­dren be­tween 3 to 5 years old to at­tend preschool for 10 hours a week.

Set­ting up 529 plans

Par­ents who send their chil­dren to pri­vate K-12 pro­grams re­ceived a break in 2017’s Tax Cuts and Jobs Act, which ex­panded 529 plans – best known as col­lege sav­ings plans – to in­clude K-12 pri­vate school tu­ition.

“The longer you have it, the bet­ter it’ll be for the ben­e­fi­ciary be­cause the money will keep grow­ing,” says Elaine Grif­fin Ru­bin, se­nior con­trib­u­tor at Ed­vi­sors, which helps fam­i­lies plan for col­lege. “We have a lot of grand­par­ents who are us­ing it to help pay for col­lege and K-12 expenses as well.”

Grand­par­ents, other rel­a­tives and friends can set up 529 plans to help fund a child’s ed­u­ca­tion, Ru­bin notes. Earn­ings in these plans aren’t taxed at the fed­eral level when they’re used for ed­u­ca­tional expenses. Ru­bin rec­om­mends Fidelity’s 529 cal­cu­la­tors for com­par­ing the plans of­fered by your home state ver­sus other states.

There are a few lim­its to be aware of. For one, 529 plans are capped at a $10,000 an­nual limit for cov­er­ing a child’s ed­u­ca­tional expenses. And if you with­draw the money for uses other than ed­u­ca­tional expenses, the IRS will charge a 10 per­cent penalty, Ru­bin notes.

Coverdell ac­counts

Lesser known are Coverdell Ed­u­ca­tion Sav­ings Ac­counts, which TIAA’s Doll says lack the flex­i­bil­ity of 529s. An­nual con­tri­bu­tions are lim­ited to $2,000, and the IRS bars joint fil­ers with an­nual in­come of more than $220,000 or in­di­vid­u­als who earn more than $110,000 from par­tic­i­pat­ing. But the money in­vested in these plans can be used for K-12 ed­u­ca­tional expenses.

Fam­i­lies also can ap­ply for fi­nan­cial aid at most pri­vate schools. It doesn’t hurt to ap­ply since the Na­tional As­so­ci­a­tion of In­de­pen­dent Schools says there’s no in­come limit.

GETTY IMAGES/ISTOCKPHOTO

Bud­get­ing is key for fig­ur­ing out how to bal­ance the cost of pri­vate school­ing.

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