Following Tuesday's news that wealthy parents are being targeted for more money from their kids' expensive private schools comes a very different, but equally terrifying, tale: Some parents are taking out loans to pay for their children's educations. That's been happening for years, you say? Well, yes. Except now the loans are being taken out for high school educations—and even kindergarten. There are even lenders who specialize in "pre-college education loans."
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Smart Money's Annamaria Andriotis writes, "Though data is scarce, private school experts and the small number of lenders who provide loans for kindergarten through 12th grade say pre-college loans are becoming more popular. Your Tuition Solution, one of the largest lenders in this space, says demand for the upcoming year is already up: This month, the total dollar amount of loans families requested rose 10% compared to a year ago; at that pace, the company expects its total funding to rise to $20 million for 2012-13. Separately, First Marblehead, which exited the market in 2008, reentered last year as demand for loans began to rise."
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Contrary to what you might think, much of the demand is actually coming from families who make more than $150,000 annually. Which means these parents, along with selecting well-above-the-average-means-level schools for their kids, could find themselves repaying loans for the foreseeable future, possibly along with college loans as well. Already, writes Andriotis, "about one in six parents of college graduates have loans, and they're projected to owe nearly $34,000 on average this year." More loans before the kids even reach PSAT-taking age means, simply, more and more debt, something it appears Americans are becoming ever more comfortable with—even as the rich complain about how poor they are. Loans are less taboo, and schools are more willing to present loan programs as "an affordability option," which means these types of loans are likely just going to become more popular.
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But that's pretty scary, particularly when you consider that the costs of private schools and colleges keep going higher and higher. Per Andriotis: "The average cost of private school is nearly $22,000 a year, up 4% from a year ago and up 26% from 2006-07, according to the NAIS." Though total private school enrollment is on the decline (perhaps because of the recession?), if loans are available to make up that difference, and if even wealthy people are requiring such loans, there's hardly a bar to keep the costs from continuing to escalate. The people who benefit from this the most are not, necessarily, the kids, but the banks or schools getting as much as a 20 percent interest rate on a loan that might go as high as $40,000—something you might look at as preying on parents who think it's their duty to send their child to a particular (and particularly pricey) school. Well, kids have always been expensive.
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Image via Shutterstock by OKSun.