Will Stevens highlights the growing problem of funding private school fees and discusses some of the ways families can mitigate the cost. Please note that tax treatments will vary with personal circumstances and the rules may be subject to future change.
How big is the school fees challenge?
It depends on a range of factors that include the location of a school and whether, or not, a child boards. As an illustration, published annual day school fees for Manchester Grammar School are just over £15,000, whereas at St Paul’s School in London, the number is more like £30,000. That rises to almost £45,000 for boarding. What’s more, fees at all schools tend to rise faster than the general rate of inflation. And remember that these costs come out of post-tax income. Then there is the issue of what may happen under a future government should a 20% VAT uplift come into force after the next election (see box).
Can families reduce the number of years they pay for?
Yes, in short. However, some of the options that follow are quite emotive and depend very much both on individual circumstances and the aspirations of the children, parents (and potentially grandparents) involved. In some families I meet there is an ongoing debate about whether every child should attend private school. Parents may, for example, prioritise a child whom they feel will benefit from smaller class sizes and more one-on-one attention. Others may take the view that the eldest should go regardless, with a view to reviewing affordability for younger siblings further out.
Then there is the decision about the best entry point, which might be 5+, 8+, 11+, 13+, or sixth form only. In areas where there is a decent non-private primary or secondary school, some parents will try to get their children into them with a view to switching later to save on fees in the early years.
Separately, there is a choice to be made about boarding versus day schools. Sometimes I meet couples grappling with whether to send their children to a remote boarding school, as opposed to a day school closer to home.
What about funding?
Once we understand a family’s intended educational pathway, there are a number of financial options to explore. Certain children may qualify for a school bursary. These are given for different reasons and the reduction in fees might be anywhere between 10-100% depending on the school and the child.
For other parents, fortunate enough to have a lump sum big enough to cover school fees all the way through, there are benefits in paying up front to bring down the total amount.
Many parents are not in either camp, however, and end up paying as they go along out of either one, or two, household incomes. Where there is still a shortfall, they may need to weigh up some tough trade-offs such as;
- Deferring the age at which they plan to stop work
- Changing the family’s saving priorities away from, say, funding a first home for each child
- Advancing money that would have been inherited later from grandparents
- Cashing in investments early
- Deferring paying down a mortgage, or even extending it
- Using the tax-free cash available from a private pension.
How do we add value?
Our role is to help families to identify and weigh up the variables that will influence school costs and model the impact of any funding choices in the context of their other commitments. Private school fees are such a huge part of many parents’ future financial plans that we are regularly contacted by people who already have children going through the system, or who will do so in the near future. One good thing from a planning perspective is that the timing of fees can be predicted from the moment a child is born, and we can then make some assumptions about the potential cost.
We can also help with areas such as risk management should one, or both, earners fall ill or lose a job and get involved in what may be contentious family conversations about inheritances and the scope for releasing capital early. Finally, there are various tax-efficient routes open to clients who plan ahead – the earlier these are considered, the better.
We recently ran a survey on how families are coping with the rising cost of school fees. Here is a snapshot of the results. To discuss these further, please contact your Adviser.
Amongst existing fee-paying parents;
- 24% are struggling to afford private schooling
- 18% are being supported by the “Bank of Grandma and Granddad”
- 17% are sacrificing future financial support for their children to cover fees.
If VAT is introduced;
- 27% will look to make savings elsewhere
- 16% will investigate up-front lump sum payments
- 13% will consider selling investments
- 13% will seek further help from other family members
- 15% may pull their children out of private school altogether.
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If you have any questions about this article, or wish to discuss your financial circumstances, please do not hesitate to contact Relationship Manager, Phil Sole and House & Community Coordinator, Emma Walker.
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