Quality child care—an essential foundation for children, with a lasting benefit—can cost as much as or more than college tuition, about $17,700 a year in Washington state, on average. But the expense also comes at a time of life when many parents are still relatively early in their careers, stretching their budgets, and often forcing trade-offs between work and family that have lasting impacts, particularly for women.
Audra Jung and Jamee Herbert see an opportunity for financial innovation to help middle-income families navigate the pre-school years, allowing parents to increase their buying power for child care today and pay for it in the elementary and middle school years when their incomes will presumably be higher and expenses lower.
They’re building a startup, BridgeCare Finance, that would make personal loans to families to pay for child care, beginning as soon as this summer. The Seattle-based company will pitch Wednesday evening at the Fledge startup accelerator demo day, alongside five other nascent businesses. BridgeCare recently won the audience choice award at the Seattle Angel Conference. (Jung is pictured above, at left, Herbert at right.)
BridgeCare COO Jung, whose background is in early childhood education, recalls a tense board meeting while working at a cooperative preschool. The teachers needed a raise. (Indeed, child-care work, despite its importance in development, is chronically undervalued.) The parents agreed, but one stood up to say a tuition increase would put the school out of reach for his family.
“It’s just between a rock and a hard place,” she says. “Increasing the buying power of families through finance, like we do for other really important things, to me, makes sense,” Jung says.
It makes sense to me, too. This month, my family is entering a season of peak child-care costs, with two kids in preschool five days a week. Our annualized cost for both kids at a pre-school we love is more than $36,000. In-state tuition at University of Washington, not including living expenses, is $11,578 per student.
Herbert, the company’s CEO, says the ideal solution would be for society to appropriately value child care through public subsidies. The subsidized child care that does exist, however, through programs like Head Start and efforts such as the city of Seattle’s Child Care Assistance Program, is limited and geared mainly toward low-income families.
BridgeCare is designed to help families that earn too much to qualify for those programs, but not quite enough to pay for child care “all at once right now,” Herbert says. “How do we get them more capital in the short term to be able to do that, and so that they’re not taking away from what we do have publicly available for low-income families?”
The BridgeCare loan would be structured as a line of credit for up to $45,000 for the first five years, converting to a term loan to be paid off over the next six years, after the child is out of child care. Interest rates will be lower than credit cards, and comparable to unsecured personal loans. People with good to excellent credit can obtain personal loans at rates between 6 percent and 10 percent, according to Bankrate.com.
Neither Jung or Herbert has a finance background, but they see that as an advantage.
“There’s so many things people have told us are impossible that turns out really aren’t. It’s just no one’s done it before,” she says, adding: “It really does take someone coming from the outside who isn’t stuck in the box of what is, and can envision what can be.”
BridgeCare has a consumer loan license in Washington and has finalized its promissory note—the contract between borrower and lender. It has hired two credit consultants and a chief technology officer, and is developing an online loan application that integrates with credit reporting, underwriting criteria, and other information to provide a “near-instantaneous pre-qualifying approval or decline,” Herbert says.
The company has been funded by friends and family and angel investors thus far.
Jung and Herbert have only found one example of a program that would be remotely competitive with BridgeCare: New York City launched a pilot Middle Class Child Care Loan Program in 2013.
In my own searches, I found that most financial resources related to child care are targeted toward care providers—essentially small business loans. And the child-care business is growing, with average revenue up 10 percent year-over-year in May, according to Sageworks, which provides financial analysis of private companies. Net profit margins in the business are slim, however, at 7.8 percent.
BridgeCare intends to market its financial services to parents through high-quality child-care centers, Herbert says.
Herbert, who brings to BridgeCare a passion for women’s empowerment, says helping more families afford quality child care could help address issues of gender equity and representation in the workplace.
Putting your kids in child care to go back to work can be a painful decision, particularly when each incremental hour of work only yields a marginal increase in income, as child-care costs cut into the budget. But staying home with the kids, particularly for women—who are expected to do so per outdated societal norms about who’s supposed to take care of children, and persistent unequal sharing of household labor in general—can result in a tangible career set-backs.
“Men get a pay bump when they have kids,” Herbert says. “It’s called the Daddy bonus or something. Women get paid less when they have kids.”
Recent research backs this up, as summarized in this New York Times headline: “The Gender Pay Gap Is Largely Because of Motherhood.”
This is no silver bullet. The pressures of raising children can cause even high-earning families who can afford the best child care to forgo one parent’s career. But BridgeCare could make the financial calculations easier for middle-income families.
