How to Save for Private Schooling

Forget about saving for your kid's college tuition. If you're thinking
of sending your child to a private school, your timeline just got a lot
shorter. These days, private grammar and high schools can cost as
much as many universities. You'll need to implement an aggressive
savings plan.

Instructions

1. Research schools and apply to the best ones for your kids (see 273 Choose the Best Elementary School). Decide if you will send them to private school at the elementary level or wait until high school.

2. Brace yourself for sticker shock. Private schools (K through 12) can run from $10,000 to $20,000 a year. Add any additional costs such as uniforms, lunches, field trips and fund-raisers as well as child care before school, after school, on holidays and during summer breaks. Find out when tuition is due, what sort of payment plans are available, and how likely it is that fees will increase and by how much. Factor all of this into your long-term budgeting plans.

3. Inquire about financial-aid packages at the school of your choice and apply (see 234 Organize Your Financial-Aid Package). Take advantage of aid targeted to specific populations such as single parents, children of color or second children.

4. Determine how your other financial needs, such as saving for retirement, will be affected by the expense of your child's education (see 241 Plan for Retirement). Figure out the minimum you need to save annually for your retirement to determine how much you can spend on your child's education.

5. Consider savings plans that have funds designated for use toward your child's education. For example, a Coverdell Education Savings Account permits a total tax-free contribution of $2,000 per year per child (or beneficiary). Note that educational funds must be used for "qualified educational expenses," which are defined by the IRS (not you). For more information, check out Morningstar.com.

6. Investigate payment protection plans in the event that a parent dies or becomes disabled, or your child becomes seriously ill. This will ensure there will still be funds to pay for your child's schooling to keep his or her education from being disrupted.

Tips & Warnings

• Tell grandparents that they can each give up to $11,000 a year to each grandchild tax-free.

• If your home has appreciated considerably and you can manage your monthly mortgage payments, consider refinancing and using the cash to pay for private school. Only do so if interest rates are low.

• Consider waiting until high school to go private. With fewer students in the pipeline, colleges aren't looking as hard at a private elementary school background.

• The School and Student Service for Financial Aid (www.nais.org/financialaid /parents) evaluates the factors that determine your eligibility, such as your assets and gross income (taxable and nontaxable). Assets include home equity, business equity, equity in rental or vacation properties, bank accounts and investment accounts (except your retirement nest egg). The SSS also considers how many children you're paying tuition for and what the cost of living is in your area.