Property Taxes vs. Private Tuition: Chicago Area Analysis

For parents with school-age children, the decision between purchasing a home in a highly-rated public school district or a more affordable home coupled with private school tuition involves complex financial considerations. While private tuition represents an immediate expenditure with no tangible return, a more expensive home offers the potential for equity growth and appreciation over time. However, the total cost of homeownership, including higher property taxes, a larger down payment, mortgage interest, and the opportunity cost of capital tied up in the property, must be factored into the equation. A 13-year financial model conducted in the Chicago area suggests that, in certain scenarios, opting for a pricier home in a desirable public school district can ultimately be more financially beneficial than paying for private schooling.

To illustrate this, the analysis compared two hypothetical families. One family purchased a home in Wilmette, Illinois, for approximately $892,250, gaining access to well-regarded public schools like New Trier Township High School. The second family bought a home in Chicago for about $383,000 and enrolled their child in the Chicago Waldorf School, where annual tuition ranges from $28,000 to $35,000, depending on the grade level. Both scenarios involve property taxes, a cost that is present regardless of the educational choice. Colton Pace, co-founder and CEO of Ownwell, emphasizes that comparing a mortgage payment directly to a tuition bill is an incomplete comparison because school taxes are a factor in both decisions.

The financial model simulated a 13-year period, assuming a 20% down payment, a 30-year mortgage at an interest rate of 6.66%, and annual increases of 3% for home appreciation, property taxes, and private school tuition. It also factored in a 5% annual return on investment for the capital the Chicago family could have invested had they not allocated it to a more expensive home. The analysis aimed to determine the financial standing of both families by the time their child graduates from kindergarten through high school.

When the child graduates after 13 years, the family in Wilmette, despite the higher initial home price and associated property taxes, found themselves in a stronger financial position. The total cost of homeownership, including mortgage payments, property taxes, and interest, was offset by the appreciation of their home and the equity built. In contrast, the family paying private tuition incurred significant direct costs that did not build equity. The analysis highlighted that the long-term financial implications of property taxes, mortgage interest, and potential home appreciation can outweigh the direct, non-appreciating cost of private school tuition over an extended period.