How to save money on your school feesPosted on 10th Feb 2016 in School fees planning, Prep Schools Guide
Robin Baker, of EDEN School Fees Planning, offers some expert advice....
Sadly there is no magic wand, money cannot appear from thin air; however through careful planning it is possible to reduce the cost impact of private education.
One major area which catches parents out is school fees inflation. Over the time your child is at school the fees will increase and in many cases this rise will be dramatic. According to published figures from the Independent Schools Council, despite record low inflation following the credit crunch, (3.6% in 2015) over the last 15 years school fees have risen almost 130%.
Average School Fees
(Source: Independent Schools Council – Annual Census)
By understanding the impact of inflation on your long-term education costs you are better able to plan for them. Prep School is generally cheaper than senior School and there are significant variances between boarding and day Schools as well as regional variances. It would not be unusual to see a 30%–50% increase in fees from Prep to Senior. Once you know the likely total cost of private school (usually around £250,000–£300,000 per child) you can then start to process of working out how to fit the sizeable payments into the rest of your financial life.
By considering school fees as part of your wider financial planning there are ways in which you can significantly improve your overall financial position. Clearly each situation is different and requires careful consideration but, for example, it is possible for some people to utilise their pension to help pay for school fees…
The simplest way to save money on school fees is to start planning as early as possible, however there are two main ways of paying; by lump sum or by regular saving. Most parents will use a combination of these two approaches.
If you have a lump sum, the larger the better, there are many ways of saving money. Simplest of all is to invest wisely and draw down amounts each term to pay the fees. Any growth on the balance should in the long run help to reduce the amount you pay. There are a number of factors to consider including the age of the child and the school fees profile, however a lump sum of approximately 65% of the total school fees for a new-born is likely to generate sufficient growth to pay the majority if not all of the child’s school fees.
If you are paying school fees from regular income then long-term school fees inflation becomes even more important. With a lump sum you have time to adapt, and possibly to save additional amounts should either inflation or investment returns not go as hoped. With regular saving you have far less time to react to changes so understanding how large the school fees may become is crucial.
Monthly payments for a child in prep school reception of £600 per month could well end up as £2,000 per month for Year 13. If you work out the average payment over your child’s entire education, for example £250,000 / 20 (years) = £12,500 – just over £1,000 per month, it may be that by saving a little bit more in the early years you are able to enjoy paying much less in later years.
Whilst strictly speaking this is not highlighting savings in terms of investment or tax, by focusing on the overall cost of school fees we are helping to smooth out the increases and in turn no doubt make school fees payments easier and providing parents with peace of mind.
Having said all of that, the benefits of school fees planning are often misunderstood. We are often asked "is IT a savings plan?" Saving is no doubt an important element in the same way building an extension on your house invariably involves putting bricks in the ground. School fees planning is the equivalent of having an architect draw up a plan of your extension before any brickwork begins; to your specification, taking account of your existing circumstances, budget and aspirations.
School fees planning is not a product, it is a service. The real value in school fees planning is helping you to establish a vision of the future. Showing you the size of the problem (amount of school fees), what impact school fees will have on your lifestyle and future plans and then finally and most importantly identifying ways to make school fees payments as efficient as possible and subsequently less of a burden.
Without an architect’s plan a building project could well be open to interpretation and turn out in a way you possibly wouldn’t have liked. In the same way a school fees plan helps parents to arrange their financial affairs to their best advantage. This can involve savings and investment, pensions, mortgage, life insurance and even at times, debt repayment, property investment and tax planning.
The solution that fits will take account of your circumstances as well as your aspirations and future plans. In addition looking at your attitude to risk is really important. Exposure to either too little risk or too much risk and you may end up with less than you need.
For most people the plan and therefore solution lies in a number of different areas, possibly a lump sum combined with some regular saving although it could also be a pension coupled with a suitable mortgage.
Each plan is bespoke involving a detailed consultation process. As each person has a different set of circumstances not everyone will be able to achieve the same results be that investment or tax efficiency. There are often a number of options for people to consider which can be detailed as part of an overall plan.
School fees planning works no matter whether your child is pre-school or a teenager, whether school fees take up most of your income or just a fraction of your asset base. So, if you could save money on school fees, why wouldn’t you?
For more information about EDEN School Fees Planning, please visit their website.