The privilege of getting good education comes with a big price, quite literally. Most private schools in Australia charge hefty annual school fees and other educational costs. While it’s never advisable to use debt to finance children’s education, it is useful to manage financial stress in the short term if parents have the discipline to do so with caution. Here’s a quick look at how to use loans to pay for private school fees and costs.
School Fee Payment through Credit Cards
Using credit cards to pay for private school fees and other education expenses is common practice among parents. It’s convenient and allows them to pay big sums at one go easily. However, bear in mind that companies issuing credit cards typically charge very high interest rates, anything between 9% and 20%, cautions Nicola Field, author of Investing in your Child’s Future [Wrightbooks, 2008].
“For card holders who carry a card debt from month to month, a useful rule of thumb is to opt for a low-rate card and bypass points-based reward programs or other perks that generally only come with more expensive cards,” advised Field.
Get Personal Loans to Fund Kid’s Education
In Australia, many financial institutions are offering personal loans in the form of personal overdrafts. Unlike standard personal loans, these loans work like credit cards in which borrowers apply for a specific credit limit, often from $10 000 to $30 000, with access to the cash through an ATM or check.
The borrower will have to pay a monthly minimum repayment, usually a percentage of the loan balance plus interest. Those who use this kind of personal loan should clear the debt as much as possible or better still, all of it, when they have more cash in hand as the interest rate can be very high, sometimes up to 17%.
Use Home Loan Redraw Facility to Pay School Fees
Families who have a mortgage with a redraw facility can make extra repayment to their home loan when they have surplus cash. Then when needed, such as when school fees are due, some money can be taken out for that purpose. Field advises parents to use home loan redraws by planning ahead. They should work out how much all the fees will be and when they are due. Minimize redraws and then make more repayments when there are extra funds.
Borrow against Home Equity Loans
Families can also add a big sum meant to cover educational costs to their home loan and take advantage of lower interest rates for home loans compared to other loans, says Barbara Drury, co-author of Investing for Australians for Dummies [Wiley Publishing Australia, 2008].
“Home equity loans work best if you’re close to paying out the loan, or you plan to make significant one-off repayments to reduce the term of your loan,” adds Drury.
Although using debt to finance children’s education is not highly recommended, it can help many cash-strapped families pay for huge private school fees in the short term. Loans that parents can use to fund kids' education include credit cards, personal loans, home loan redraw facilities and home equity loans. Do remember that such a practice should only be carried out with discipline and extra repayments whenever financially possible.
Found this article useful? Read also Saving for Children’s Education, Meeting the Costs of Children’s Education and Managing Private School Fees.
Wei Yin Wong - I started my working life as a reporter at an English daily called The Sun in Malaysia 16 years ago, writing health-related articles. ...
