Private grade schools and high schools offer great educations. Unfortunately, they can also be extremely expensive. In order to send your children to the best schools, you may find it necessary to look for school loans. While school loans for grade school and high school aren't as widely available as they are for college, it is possible to find school loans that will help you cover those large tuition payments.
Your Options for School Loans Because the federal government doesn't have student aid programs for the k-12 grades, your options for school loans are limited. Your main sources for school loans will be from private lending institutions. You have several types of school loans to choose from, private education loans, home equity loans and cash-out refinance loans. Here is the basic information about the different types of school loans.
Use Private School Loans: Many banks, credit unions, savings and loan associations and other lending institutions have education loan programs. The school loans offered by the programs work just like other unsecured personal loans. The bank gives you a lump sum of money, and you have to pay it back plus interest over several years. Because the loans are unsecured, which means that there is no collateral, you will have to pay higher interest rates than for secured loans, such as home equity loans.
- Pros: Your house and other assets are not on the line, and the interest rates are much lower than those of credit cards (Boarding School Review).
- Cons: They are hard to get unless you have really good credit, and the interest rates are usually higher than those of secured loans, such as home equity loans.
Use Home Equity Loans for School Loans: If you have equity built up in your home, you can use it to get school loans. Any number of financial institutions can give you a home equity loan or home equity line of credit, which you can use for school loans.
Many lenders are willing to lend you up to 125 percent of your equity's value, but most financial experts discourage borrowing above the original value of your house (Michael).
- Pros: You'll have a lower interest rate than that of private school loans because you're using your equity as collateral, and home equity loans are easier to get than unsecured loans, assuming you have equity.
- Cons: You could lose your house if you default on your payments, and you are depleting your home's equity.
Use Cash-Out Refinance Loans for School Loans: Another option for school loans is to refinance your current mortgage and turn the extra equity into cash. The concept is really quite simple. Here's an example to make it clear. After living in your home for a while and making regular payments on your mortgage, you have built up some equity, which is the portion of your home that you own ("Glossary"). Imagine you own a house worth $100,000 and have paid off $60,000 of your mortgage; therefore, you own 60% of your house and have $60,000 worth of equity. Now you need some cash to use for school loans. So, you go to a bank and you borrow $70,000 using your house as collateral. You use $40,000 of your $70,000 to pay off what remained of your old mortgage, and then you are left with $30,000 in cash to use for school loans.
- Pros: They have lower interest rates than personal loans, and they can lower your mortgage payments if the market interest rate is likely to drop in the future.
- Cons: You can lose your house if you default on the payments, you could end up with higher mortgage payments if the market interest rate rises, and you can't borrow as much money as with a home equity loan (Guttentag 74).
School loans can help you afford sending your child to private schools. If you carefully review your options and shop around to compare lenders' offers, you should be able to find school loans that fit your particular situation. Don't get discouraged if some banks turn you down because there is a good chance that others will gladly provide you with school loans. However, make sure you carefully review all documents and agreements before you sign anything. You must know all the terms of your school loans and what you are expected to give in repayment before committing.
