Private school tuition is a significant financial commitment that many families face – even those with six-figure incomes. Many high-earning young professionals struggle to balance various financial priorities, such as paying down debt, saving for retirement, and securing the best possible education for their children. Meanwhile, education costs continue to soar.
The average tuition for private high schools is approaching $13,000 per year, while top boarding schools often exceed $60,000 annually. With these rising costs, the challenge lies in finding a way to afford quality education without compromising other essential financial goals. This blog aims to help provide practical strategies for families with low six-figure incomes to manage private school tuition costs effectively, helping ensure that their children receive a top-tier education while maintaining financial stability.
Fitting the Costs of Private School Tuition into Your Budget
As private school education costs have steadily increased over the years, the result has been additional pressure on household budgets. Beyond tuition, impacted parents must also account for hidden costs such as uniforms, extracurricular activities, and transportation, which can add thousands of dollars to the annual expense. It’s imperative for families to plan their finances carefully.
A crucial first step is to create a detailed budget that includes the direct and indirect costs of private school education. Start by evaluating your current spending habits. One rule-of-thumb in budgeting is the 50/30/20 rule, which suggests allocating 50% of your income to necessities, 30% to wants, and 20% to savings and debt repayment. However, as we outlined in our blog on budgeting tips for high-income families, this distribution can be adjusted. With more disposable income, it’s feasible to contribute a larger percentage to tuition, provided you meet your other financial goals.
Identify other areas to cut back in lieu of higher education spending. For instance, non-essential expenses like dining out frequently, international vacations, or high-end subscriptions can be reduced or eliminated. To combat lifestyle inflation, set spending limits for different categories. For example, even if you can afford a luxury car, decide if that’s a reasonable purchase based on your financial objectives. By making judicious cuts, even households with low six-figure incomes can find the necessary funds to cover tuition costs without sacrificing their financial health.
Utilizing Tax Benefits and Savings Plans
One of the most effective ways to manage private school tuition costs is through tax-advantaged savings plans and credits. A 529 savings plan, traditionally associated with college savings, can also be used for K-12 education. These plans offer tax-free growth on investments, and withdrawals for qualified education expenses are not taxed at the federal level. While the primary benefit is for higher education, utilizing a 529 plan for private school tuition can provide significant tax savings.
Education tax credits and deductions for K-12 expenses are often available alongside 529 plans. Currently, over half of states provide some form of tax relief, and this trend is expected to grow. This includes Pennsylvania, where contributions of up to $36,000 are tax deductible in 2024. However, it’s important to differentiate these state-level benefits from federal tax relief, which remains more limited in scope.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information can be obtained by calling your financial advisor. Read it carefully before you invest. The availability of such tax or other benefits may be conditioned on meeting certain requirements.
Flexible Spending Accounts (FSAs) can be another useful tool for managing education-related expenses. While FSAs are often used for healthcare costs, they can also be applied to certain education expenses, reducing your taxable income. It’s imperative to understand the specific rules and limitations associated with FSAs to maximize their benefit. Talk to a financial professional to cover all of your bases.
Wells Fargo Advisors Financial Network is not a legal or tax advisor.
Exploring Financial Aid and Scholarships
Financial aid and scholarships are not just for college students. Many private schools offer need-based and merit-based financial aid to help families manage tuition costs. Need-based aid is determined by the family’s financial situation, while merit-based aid is awarded based on a child’s academic, artistic, or athletic achievements.
When applying for scholarships, it’s essential to research and apply early. Many scholarships specific to private schools have deadlines well before the school year, and competition can be fierce. The process for finding and applying for scholarships is similar to that of college scholarships, and it’s worthwhile to repurpose strategies from your college search for this purpose. We provided a detailed step-by-step guide in a recent article.
Another often overlooked strategy is negotiating tuition directly with the school. Private institutions may be willing to offer discounts or payment plans, especially if you demonstrate financial need or have multiple children enrolled. Engaging in open discussions with school administrators about your financial situation can lead to significant savings.
Supplementing Income
Supplementing your income is another practical approach to affording private school tuition. Many families succeed by taking on freelance or consulting work in their professional fields. These additional income streams can be flexible and lucrative, helping offset the high education costs.
Investment income is another potential source of funds. Dividends and returns from investments can be earmarked specifically for education expenses, providing a steady stream of income to cover tuition payments. Additionally, if you own property, renting out a part of your home or an additional property can generate substantial rental income that can be directed toward education costs.
Monetizing hobbies or skills can also provide supplemental income. Whether it’s offering tutoring services, selling handmade crafts, or taking on part-time work related to your interests, these endeavors can make a meaningful contribution to your family’s education fund. Read our article on options for professionals to supplement income for more detailed guidance.
Alternative Education Options
While private school education is often viewed as the gold standard, there are high-quality alternatives that can provide excellent education at a lower cost. Charter schools and magnet programs offer specialized curricula and are publicly funded, making them an attractive option for families seeking a private school-like experience without the hefty price tag. That’s one reason why enrollment in charter and magnet schools has doubled over the past decade.
Percentage of Public School Students Enrolled in Charter Schools, 2021-2022
Source: National Center for Education Statistics
Homeschooling is another alternative that is gaining popularity. It allows for a tailored educational experience and can be more cost-effective than traditional private schooling. Although homeschooling requires a significant time commitment from parents, it offers the flexibility to design a curriculum that meets your child’s specific needs and interests.
Final Thoughts
Balancing the desire to provide the best possible education for your children with the need to maintain financial stability is a complex challenge. However, by carefully planning your budget, utilizing available tax benefits and savings plans, exploring financial aid and scholarships, supplementing your income, and considering alternative education options, you can afford private school tuition on a six-figure income.
It’s important to regularly evaluate your financial situation and adjust your strategy as needed. Working with a financial professional can provide tailored guidance to help you navigate the complexities of funding private education while securing your family’s financial future. Prioritizing your children’s education is a noble goal, but it’s equally important to ensure that you maintain your financial health along the way.
If you’re navigating the financial challenges of private school tuition, contact Magellan Financial Inc. today to schedule a consultation. Our team of experts can help you develop a comprehensive investment plan that aligns with your educational goals and long-term financial security. Make the smart choice for your family’s future—let Magellan Financial help guide you every step of the way.
For More Tips for Saving and Investing for High Income Families, Contact Our Team Of Financial Professionals Today!
Sources:
1 How to Balance Retirement and College Savings (Magellan Financial, 2019)
2 Average Cost of Private School (EducationData.org, 2023)
3 Tips for Budgeting and Spending for High Income Families (Magellan Financial, 2024)
4 529 Plans: What It Is, How It Works, Pros and Cons (Investopedia, 2024)
5 Using a 529 Plan to Pay for K-12? (SavingForCollege.com, 2023)
6 How To Find College Scholarships (Magellan Financial, 2023)
7 Options for Professionals To Supplement Income (Magellan Financial, 2023)
8 Fast Facts: Charter Schools (National Center for Education Statistics, 2023)