Earlier 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 )