Living with credit

High-cost child care: Pushing families into debt?

Kelly Dilworth

When my husband and I first started shopping around for infant day care, I was shocked by how much it cost.

In our midsized city in central Ohio, full-time care at a reputable center can run as high as $1,300 a month. In some higher cost areas, such as New York City or San Francisco, infant care can cost almost twice that.

According to Child Care Aware of America, parents in 31 states around the country are paying more, on average, for infant child care than they would likely have to pay for in-state college tuition.

Is the high cost of childcare pushing some families into debt?

In Colorado for example, a college freshman at a four-year public university will owe approximately $9,096 for a year’s worth of in-state tuition and fees, according to the College Board. Parents of infants, by contrast, will have to pay slightly more than that: $9,619 per year.

But unlike college students, most parents don’t have access to low-interest loans for day care.

Limited options for most
The city of New York recently began offering lower cost loans to upper-middle-class parents who are struggling to pay for child care. If their children are from ages 2 to 4, parents who make between $80,000 and $200,000 per year may qualify for up to $11,000 at 6 percent interest — if their credit scores are at least 620 or higher.

The program is still less than a year old and has received sharp criticism for encouraging families to go even deeper into debt. But it appears to be the only program of its kind that offers relatively low-cost loans geared specifically for child care. I couldn’t find a single other program in the United States that helps middle-income parents who don’t qualify for public child-care subsidies manage the soaring costs of day care.

Parents may qualify for a federal child care tax credit, but even that won’t do much to whittle down the annual cost of care. Parents with one child can claim up to $3,000 in expenses and get up to 35 percent of it back, depending on their annual income. But that only adds up to a maximum of $1,050 — about a month or two of full-time care. Parents with multiple children can claim up to $6,000 in expenses and get a maximum of $2,100 back.

Earlier this month, Democratic Sens. Barbara Boxer, Kirsten Gillibrand, Patty Murray and Jeanne Shaheene, introduced a bill that would nearly triple the amount that parents could claim as an expense. Parents with one child, for example, would get to claim up to $8,000 in child care expenses, while parents with multiple kids would be able to claim up to $16,000 in expenses.

But even if that bill eventually became law, parents would likely still owe thousands of dollars to their local day care.

That got me wondering: If working parents can’t come up with enough money to pay for high-quality care (and all the other expenses of having a newborn), are they using credit cards or other high-interest forms of credit to help fill the gap?

Credit cards as last resort
My guess is borrowing funds, including using credit cards, to help pay for child care isn’t all that uncommon. Parents may be able to lower the cost of care in some ways. For example, home-based child care is typically less expensive than center-based care.

But when you add up all the other costs of child-rearing, it’s easy to imagine how some parents can end up sliding quickly into debt. For example, even if parents aren’t directly charging child care payments to their credit cards, they may be using their plastic to pay for other necessary expenses, such as food, baby gear or even household bills.

According to an April 2014 report from the Pew Research Center, some parents may be responding to the rising cost of care by having one parent stay at home. According to the Pew report, the number of mothers who are opting out of the workforce has shot up in recent years. But that, too, can lead to piling credit card debt — especially if families are hit with a host of unexpected expenses.

In our case, my husband and I decided that it made more financial sense to pay for day care since our income would take a much harder hit if I stayed home. But in order to do so without going into debt, we had to cut our budget to the bone.

That could mean that if we’re one day hit with a bigger emergency than our savings can bear, we may have to use our cards to plug the gap. As a personal finance writer, the idea of using high-interest credit to help pay for everyday expenses is tough to accept. But what other choice will we have?

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