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Your Take: Loans for Daycare?

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DaycareEarlier this week, New York City mayoral candidate Christine Quinn introduced a pilot program that would offer loans to middle class parents to help pay for daycare. If your child is between two and four and if your income is between $80-$200k and you have a credit score over 620, you can qualify for a $11,000 loan at 6%.

I’m always wary of these types of programs because subsidies and loan programs tend to help increase prices. As college gets more expensive, we see more loans and grants, which helps support (and some believe it contributes to) the higher prices. We all benefit from these grants and loans to a select group of college students because it results in more college graduates and a more educated population.

Daycare is similar because it allows parents to return to the workforce after parental leave. The big hurdle is cost, daycare is expensive. If it costs $1600 a month, someone in the 25% tax bracket needs to earn $2100 a month to pay for it. However much you make more than $2100 is effectively your salary and that’s tough.

I’m also interested in understanding the economics of daycare and these loans. Ignoring the emotional reasons for the work & daycare vs. the stay at home mom/dad (and the longer term reasons), the financial math is simple. If you earn more money after taxes than daycare costs, you can financially justify working instead of taking on the job of caregiver. The difference in those two will determine how much you’d rather work vs. stay home (or vice versa).

How does the loan mess up that calculus? You can now take on a low interest loan and thus lower the cost of daycare by spreading it across several years. It’s an interesting idea with some big implications.

If you have kids and this were available to you, would you do it?

(Credit: Steve Snodgrass)

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14 Responses to “Your Take: Loans for Daycare?”

  1. I wouldn’t do it honestly. I like the being able to pay the school with no interest rates. Prices of daycare are already high enough. No need to add extra on top of that. If I cant pay the school monthly how am I going to pay the loan back?

  2. So, these loans are only available to those making at least $80k a year. Why in the world would you need a loan to pay for daycare then? I make less than that number, but I am able to comfortably pay for daycare. I wouldn’t take out a loan for it. I think that is a ridiculous pilot program, especially for the income parameters.

    • Scott says:

      Completely agree. Sounds like they are going after people who have money but are really stupid with it – a demographic that might prop them up temporarily but will fail them in the long run. I just can’t see the point of the business model for this pilot program – base your business on offering a service to people who generally don’t need it? I’ll invest elsewhere.

    • Jim says:

      80k a year in NYC isn’t much given the cost of living, it’s great almost everywhere else though.

  3. Michelle says:

    I wouldn’t do it. Just doesn’t seem like a good idea to me. Like you said, for one, it would raise daycare prices, and two, parents should find a way to pay for it besides a loan.

  4. There’s no way on earth that we’d do this with our kids. Thankfully we both work from home, so it’s not a big issue for us but would not do it at all. It seems incredibly shortsighted to take loans for something like daycare given other long term educational costs the way they are. To play devil’s advocate though, we do have to remember that the cost of living in NYC is quite a bit higher, so $80k will not go as far there. That said, I think we’d be looking for other options.

  5. Steph says:

    There is now way in h3ll I would take out a loan to pay for daycare! I don’t care about the cost of living difference between NYC and everywhere else. If you can’t afford daycare on what you already make, then you should stay home with the kid(s). The only exception to this rule would be for a single parent since you can’t have zero money coming in, but even then (s)he would be swamped financially with a loan + all other life expenses required to survive. However, ANY & ALL loans should be avoided if at all possible!

    In the end, offering loans to pay for daycare will increase the cost of the service just like it did with student loans and the cost of post-secondary education. With guaranteed money coming in, colleges & universities have been able to charge whatever they want because they know the students & their parents will have access to the necessary funds to pay for it. The same will happen with daycare expenses.

  6. freeby50 says:

    Its an odd concept.

    I can see a situation where this might be useful. Particularly in NYC with their high costs. But it only does make sense for a certain group of people in the middle. Say you make $90k a year and your a single parent. Your spending $60k on rent and other expenses and then you’ve got 2 kids their daycare costs $20k each per year. You can’t afford to put them both in daycare and you can’t afford to just quit your job. A $10k loan would get you enough to cover the daycare. And it could be a short term thing till the kids are old enough for public school. So maybe a bridge loan to get you 1-2 years till your older kid starts public school and that would free up money to pay back the loans.

  7. wait, what? Did i read this too fast?

    Day care is deductible. Why would you need a loan for it, too? Is the idea that you’re going to repay the loan out of your income tax refund?

  8. This just has bad idea written all over it.

  9. Matt says:

    Pathetic. If you can’t afford daycare without a loan you should not be sending them to daycare. You are too poor of a money manager.

  10. NateUVM says:

    If there is a cohort for which a financial product would be of financial benefit (such as the example provided by freeby50), then how can it be a bad product?

    Problems only arise when people that would not benefit from a product start using it.

    No, people who live in an apartment probably do not need a lawnmower and would probably be financially worse off for owning one. Should we start a movement to make sure we stop all lawnmower sales?

  11. I think it’s a bad idea for the exact reason you mentioned…these types of subsidies do seem to increase costs much like colleges. I live in NYC and $80,000 isn’t that much when daycare is over $1,000 a month. With housing also very expensive, it makes things very difficult. But if you have to resort to this type of loan, you really need to find an alternative whether it is staying home, having a family member help out a little with daycare or finding cheaper daycare.

  12. Anonymous says:

    I make 31000 a year and i pay between 800-2000 a mth for daycare plus rent and food and health insurance car payment and im struggling like hell to keep afloat i have to prepay 3weeks at a time i guess its frustrating to see that the only way i can get hell is if i make 500 less a ye or make 80+ thousand a year rhis makes no sense if i made only 12000 more a year i wouldnt even ask for help im a single mother and believe in only asking for help when u need it and i need it i dont have family or a baby daddy who is alive to help me care for my son i work night shift and am just so frustrated as to why i cant get help to just make ends meet. So angry with this this is the silliest thing i have ever heard of!


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