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Education Loans for Private K-12 Schools
There are two types of education loans: fixed rate education loans and
variable rate education loans. Variable rate loans may initially offer
a lower interest rate than the fixed rate loans, especially if you
have excellent credit, but this interest rate can change. Parents
should consider not just the current interest rate on the loans, but
also how much that interest rate may increase over the life of the loan.
See also tuition payment plans.
Loan terms for fixed rate loans are typically 1 to 5 years, similar in structure to automobile loans. Loan terms for variable rate loans are typically 10 years, although some loans are available with terms of up to 20 years.
Given that the student and parents will likely be borrowing money for college, it is not a good idea to incur additional long-term debt for a private secondary school.
Origination and Guarantee Fees
Most education loans charge an origination or guarantee fee of up to 6%. These fees are deducted from the disbursement checks. Shorter-term fixed rate loans often do not charge origination and guarantee fees, but instead factor them into the interest rate. (A 6% origination fee on a $10,000 loan with a 10-year repayment term is the equivalent of a 1% higher interest rate with no origination fee. On a 5-year repayment term it is the equivalent of a 2% higher interest rate.)
Most loans for private K-12 schools are credit underwritten. This means the lender looks at your credit history and credit scores before deciding whether to approve the loan. Parents with higher credit scores are more likely to be approved. Parents with volatile income or who are self-employed are less likely to be approved.
The interest rates may also depend on your credit scores. Interest rates are often higher for borrowers with a history of credit problems.
Consider the Total Cost of the Loan
When selecting a loan, parents should consider the total amount of interest paid over the lifetime of a loan. A longer term loan may have lower monthly payments, but the total amount of interest paid will be higher. A loan with a higher interest rate and fees will also be more expensive. FinAid has a loan payments calculator you can use to calculate the amount of interest paid over the lifetime of the loan. There are also other calculators you can use to evaluate the tradeoff between interest rates and fees. Parents should also ask whether the loan allows prepayment without penalty.
Finding a Lender
First, look at this site's list of education loans for private school. See also the discussion of tuition payment plans. Your school may know about small local loan programs available to their families. There are also a variety of alternatives to education loans and payment plans.
"To give away money is an easy matter ... and in any man's power. But to decide to whom to give it, and how large and when, for what purpose and how, is neither in every man's power nor an easy matter."
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