NYC Preschool Loan Program Concerns Experts
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UPDATED: Aug 9, 2013
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If the future of our nation lies in our children, then Christine Quinn is making sure they are as educated as possible. But it will not be cheap or without a long-term contract.
Quinn, a New York City mayoral candidate, recently proposed a subsidized student loan program for city residents to pay for preschool. The plan, the Middle Class Child Care Loan Initiative, will help middle class families with annual incomes between $80,000 and $200,000 afford high quality childcare. Subsidized childcare for lower class residents already exist within the city.
The pilot program will offer loans up to $11,000, at a 6 percent interest rate, for parents with children between the ages of two and four.
Quinn said the initiative will give NYC’s next generation a “jump start on their education.”
“Early childhood education is one of the most important investments a parent can make,” she said in a statement. “But too often, quality child care is out of reach for middle class families.”
Despite her focus on early education, adding debt for education is already a crushing problem in the United States. Loans.org spoke with several NYC residents and financial experts to see whether or not the plan is worthwhile or if it only further cripples the nation with more student loan debt.
Preschool Costs Override College
Quinn’s plan does bring up a good point — childcare is expensive. In some areas, it can be more costly to pay for childcare than for higher education.
Child Care Aware of America found that in 35 U.S. states and the nation’s capital, the average annual cost for center-based infant care was higher than a year’s tuition at a four-year public college. In Washington D.C., the difference between the two was the greatest.
Although some consumers are surprised at the cost of childcare, Marc Wiznia, a NYC resident and father of two young daughters, is not. Wiznia, chief operating officer for Wizbe.com, understands that due to the number of staff required and the year-round nature of childcare, the costs can surpass that of tuition.
The big difference in cost is the amount of time a parent has to prepare for childcare and for college. For college, a parent can save for upwards of 18 years once they find out about a child. For childcare and preschool, that time is cut short.
“That’s why preschool loans are so important, because parents only have five years or so to set aside money — that’s not much time for it to grow, particularly in this economic environment,” he said. “Preschool loans give parents additional time to save.”
Wiznia said there is a gap in the education payment landscape for preschool. Parents of college-aged children are usually in their 40’s and 50’s, whereas those with preschool aged children are significantly younger and in “their career-building years.”
The Expensive Educational System
There are NYC residents that could utilize this plan, but Kevin Worthley, certified financial planner and college planning expert, wonders whether borrowing for preschool is a sound financial plan.
He questioned: if the family cannot afford tuition and fees for preschool without taking out a loan, how will the parents be able to afford expensive private tuitions later in the student’s life? Parents are trapped in a dichotomy of wanting to provide the best for their children, yet having fewer resources to do so.
“They don’t want to go deeper into debt, nor do they want their student to accumulate too much in loans, but they almost feel forced to so that their student has the best chance at a good career and life,” he said.
But not all experts agree that parents are willing to sacrifice like they did in the past.
Two to three decades ago, parents were more willing to sacrifice for their children, said Mark Kantrowitz, senior vice president and publisher of Edvisors Network. Nowadays, they are less eager. The rising cost of college is partly to blame.
When students choose a form of higher education, the cost matters more than their educational capabilities and grades.
“More students are not enrolling at their first choice school not because they didn’t get in, but because they couldn’t afford it,” Kantrowitz said.
Parents can save for their child’s education, but it takes time, which is a luxury for many.
When Kantrowitz advises parents how to save for their child’s education, he suggests a one-third rule. One-third of the cost should come from savings, one-third from their current income, and one-third from future income in the form of student loans.
If the child’s K-12 years cost the parent several thousands of dollars, this greatly adds to their current costs and disrupts their saving abilities for higher education.
“You are paying the cost of a college education before they even go to college,” he said. “When are they going to pay off that debt?”
For some parents, the debt is never repaid.
Michael Edberg, managing partner at J.M. Edberg Investment Management, said that when parents incur debts for their young children, it threatens the child’s future college funds.
“College savings and retirement savings are neglected for current wants and needs,” he said.
Edberg said this will have a major impact on both the parents’ retirement and the overall quality of their children’s lives. He said college should always have a priority over preschool.
Although Edberg believes there is value in promoting and funding educational programs, he said the programs should be universal and not aimed at a specific income class.
“For a country and its economy to be strong, you need to have an educated workforce,” he said.
Tim Fauth, education expert from Money Crashers and father, also believes that education is a good investment. But he worries that preschool loans illuminate a broken educational system.
“Since student loans are readily available for higher education, the cost of college has continued to skyrocket,” he said. “Now that they’re available for preschool, you can expect those costs to rise as well.”
Predicting a Child’s Future
Costs aside, when a parent is focused on enrolling their child in an exclusive school, it usually is because they have high standards for the child’s future education. These standards can extend to Ivy League universities, law school, and doctoral programs. But parents’ dreams leave out the main element: the children themselves.
Although some parents Kantrowitz spoke with state that their newborn child will end up at Harvard, he doesn’t believe it is that simple.
“It’s hard to predict what a child will eat for breakfast,” he said stating that predicting a child’s university choice and cost is impossible.
Putting a child in private and advanced programs is less about the college they will end up in later, but more about shifting the educational environment that the student is in.
Wiznia agrees with Kantrowitz. He said that any parent who states that their child is college bound is fooling themselves.
The future of college could change drastically at well. Wiznia believes that online courses could redefine what it means to go to college in the next decade or two.
“At the end of the day, college is the child’s decision, and it’s impossible to know what your child will decide 15 years from now,” he said.