Financing Basics

Education is a crucial investment in a child's future, and as a parent, planning ahead for their educational needs is essential. This article explores the various educational savings accounts available to parents for private K-12 education. Understanding these options will help parents make informed decisions and effectively engage with their legal and financial professionals.

The History of Educational Savings Accounts

Educational savings accounts in the United States have evolved over time to address the need for specialized savings vehicles for education expenses.

Here is a brief history of educational savings accounts and the key legislative milestones:

1. 1996: The Small Business Job Protection Act (SBJPA): The SBJPA, enacted in 1996, introduced a new type of account called the Education IRA (now known as the Coverdell Education Savings Account or ESA). This legislation allowed families to save for education expenses with certain tax advantages.
2. 1997: Taxpayer Relief Act (TRA): The TRA, passed in 1997, expanded the scope of Education IRAs (Coverdell ESAs) by increasing the annual contribution limit from $500 to $2,000 per beneficiary and extending the use of funds to include elementary and secondary education expenses in addition to higher education.
3. 1998: Internal Revenue Code Section 529: In 1998, Section 529 of the Internal Revenue Code was enacted, creating a new type of educational savings account known as the 529 College Savings Plan. This legislation allowed for tax-advantaged savings for higher education expenses.
4. 2001: Economic Growth and Tax Relief Reconciliation Act (EGTRRA): The EGTRRA, enacted in 2001, made significant

Parents turn to private K-12 education for all kinds of reasons, from overall quality of curricula and individualized teaching strategies to location and religious affiliation. Now they may be adding another motivation to the list: overcrowded classrooms and public school bus rides just seem more dangerous in the age of coronavirus.

If you’re home-schooling your kids right now, the day they return to classes may seem like a distant dream. (How’s your blood pressure?) But September will come—with or without online classes. Chances are you’re making decisions right now that will affect at least a year of your child’s future. Chief among them may be how you will continue to finance your child’s private school education.

In 2020, the average cost of K-12 private school tuition reached $11,012. Depending on where you live and whether you have elementary-, middle-, or high school-age kids, your mileage may vary. But across the country, student loan debt has been increasing steadily along with the rising cost of education. K-12 loans aren’t subsidized by the federal government like higher-education loans. Still, many parents clearly believe that private school education is worth the investment. The question moms and dads should be asking themselves is, “How can I be sure I’m investing wisely?”

School Stability

The global coronavirus pandemic has injected uncertainty into every sector of the economy. That’s true at the micro-level, as many parents join the fast-expanding ranks of unemployed workers. It’s also true for private schools,

In December 2017 the 115th Congress of the United States passed a major act dealing with taxes. One of the changes in the Tax Code pertained to ESA or Educational Savings Accounts. Most parents and grandparents are probably familiar with ESAs as a means of saving for their children and grandchildren's college educations. Congress has expanded Section 529 ESAs to include K-12 education expenses as well as college expenses.

First, a bit of history. The educational savings accounts known as Section 529 plans were created by the Small Business Job Protection Act Of 1996. The section of this act which pertains to educational savings accounts is entitled PART VIII—QUALIFIED STATE TUITION PROGRAMS. The text begins on page 141. This is worth reading so that you can discuss the topic with your financial advisor when you set up your 529 plan.

Changes to the Tax Code

On Friday, December 22, 2017 President Donald Trump signed An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 While the Act has effects on a wide range of tax situations, the specific text pertaining to K-12 educational expenses can be found on page 74. Here is the relevant paragraph:

‘‘(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION.—Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment

Beginning the school search process is a lot of fun. Those beautiful photographs of tree-lined campuses and sports activities, the candid shots of classroom scenes portraying kind, patient teachers, the history of the school and its many accomplishments over the years, as well as all those famous graduates - it is all very impressive. So, you list the schools you want to examine in greater detail. At this point in your school search process, the question that I posed in the title of this article begins to surface.

I can hear you wondering how you will compare schools objectively when the costs seem so different from one school to the next. One boarding school charges $56,000 for tuition, room and board, while another school in the same state lists its tuition, room and board as $28,000. Why do some schools cost so much and some cost so little?

Boarding schools

Your costs for schools that charge the most for their services range from $45,000 to $65,000. These schools are residential schools or what we commonly call boarding schools. As well as charging for tuition and related expenses, these schools must bill for room and board. You will notice that some schools offer two types of boarding arrangements. One is the customary seven-day-a-week boarding; the other is a five-day boarding scheme where the students reside at the school during the week and return home on the weekends. The five-day boarding scheme costs less than the seven-day version. It

I am always sad to hear parents rule out sending their children to private school because it is too expensive. The conversation usually begins with one of these facts as the reason for considering private school:

1. Their child is gifted.

2. Class sizes in the local public school are way too large.

3. Their child has a learning disability.

Any one of these reasons is a valid reason for considering private school. But, unfortunately, that is as far as considering a private school gets in most cases. Why? Because either the parents assume that they cannot afford private school or they looked at the page on a school's web site showing tuition and fees and panicked.

Considering sending your child is a major decision. As with any major decision, it makes sense to do your due diligence before ruling anything out. When you take time to do a thorough investigation of the facts, as opposed to your assumptions, you just might be pleasantly surprised at what you discover. That applies equally to paying for private school.

Here then are six ways you can pay for a private school education. One just might prove to be the answer you are looking for.

1. Write a check.

Some people can afford to write a check for their children's private school tuition. If you are in a position in life where you can do this, don't forget to ask about a cash discount. Most schools will be thrilled to