Private School Tuition

check book checking account

Our school arranges for a 2.5% simple interest tuition loan through First Bank and Trust. 10 month amortization period, paid automatically on the 15th, costs me less than $200 per year to keep my liquidity to invest all year for the $10,000 tuition we pay for 2 kids.

Despite the irrational fear of paying interest on the money board, borrowing money (at simple or compound interest) to stay liquid and earn a higher return elsewhere is the better strategy. My $10,000 invested each and every year my kids are in school in the Vanguard 500 Index will earn far more than just about any rate I could borrow their tuition. I'm happy to pay ~$930 per month for 10 months so I can add another $10,000 every year to my investment portfolio and keep it there for the next 20 years.

(The math still works if you use a HELOC or some other low interest financing to pay tuition, provided you're investing in long term assets and retiring the tuition debt over the school year.)

There's no point using an elementary 529 plan due to short term volatility and limited time to accumulate funds. Elementary tuition is a short term expense that should be paid from current income, while you invest for yourself long term at the same time.

For college, I recommend you use the LA Start program for college because you get a huge $2,400 per child state tax credit (very valuable with current $10,000 SALT limitations) a little match bonus and 18-25 years to accumulate and reinvest without worrying about volatility. The Louisiana plan is actually one of the best rated plans nationally and has Vanguard funds with institutional expense ratios (0.02% expense ratio, $2 per $10,000 invested!)

If junior doesn't go to college, you can make yourself the 529 beneficiary and go to golf school or learn to be a sommelier or something else cool. Can't do that with an elementary 529.

Currently pay out of checking.

I'm hoping that I have overfunded the 529 plans and I can use that excess for the last 5-6 years of #3's school. College tuition will probably keep rising and I will actually be underfunded by the time that rolls around (10+ years).