Private schools are set to be the next victims of the credit crunch after
parents were hit with another inflation-busting rise in fees.
Schools report growing numbers of parents are struggling to meet the cost of a
private education alongside higher mortgages and rising food and fuel costs,
with some even having to withdraw their children from school.
Last week, the Independent Schools Council (ISC) reported in its annual survey
of 1,271 members that fees leapt an average of 6.2% last year to £11,253 a
year. Day schools now cost an average of £9,069 while boarding schools cost
£22,059.
Philippa Gee of adviser Torquil Clark, which helps with school-fees planning,
said: “I have spoken to several schools in my area of the West Midlands who
are reporting a worrying increase in parents missing payments since the
start of the credit crunch - some parents have even had to pull their
children out of schools.”
She added: “Because their finances were so tight already, the slightest push
has been the last straw.”
Schools also told The Sunday Times last week that they expected worse to come
later in the year.
The City of London School for Boys increased fees by just 2% in anticipation
of hard times. David Levin, headmaster, said: “I have encountered
professionals who are saying they can't afford independent schools anymore
and have opted for the local comprehensive instead. We expect the stresses
will emerge at the end of this year. It is important that parents choose
their school carefully and are aware of past fee increases, so they can plan
for the future.”
Over the past decade remortgaging or drawing against the equity in a family
home has become one of the most popular ways to pay for school fees thanks
to rising house prices. However, this has become more difficult as lenders
have increased rates significantly for borrowing of more than 75% of the
property's value.
Figures from Torquil Clark also show that remortgaging may not be the best
option - parents will be hundreds of thousands of pounds better off if they
plan ahead and save instead.
Gee said: “People envisage that they will be able to pay fees out of income.
However, when the time comes they find they are already committed. Over 85%
of our clients are having to turn to loans. University fees only compound
the financial nightmare.”
We look at the best ways to pay for private education.
Saving
Sending your child to a private day school from the age of 11 to 18 would cost
a total of £185,200, assuming you have a one-year-old now and fees rise by
an average of 6.2% a year. If you invested £107,000 when your child was one,
assuming a rate of return of 5.5%, you would be able to meet these costs,
according to Torquil Clark.
However, few people have the luxury of a lump sum to put down. Alternatively,
if you saved £810 a month from birth until your child was 11, you would have
enough to cover the fees.
By contrast, extending your mortgage by £185,200 at 5.5% interest would end up
costing £235,260 - although the amount would be spread over the mortgage
term, say 15 years.
If you remortgage, make sure you invest your lump sum at a top savings rate.
Halifax offers 6.85% for five years, although rates could fall after five
years.
Schooling abroad
Growing numbers of parents are considering sending their children to the
Continent or even South Africa, international schools report.
Fiona Rogers, general secretary of the Council of British International
Schools (Cobis), said: “English international schools are increasingly
popular - more than 1,000 new schools opened around the world in 2007 alone.
Our schools are almost all oversubscribed.”
Ferdi McDermott, principal of Chavagnes International College near Nantes in
France, said: “We have seen hits to our website from the UK and requests for
information rise over the past year.”
While fees at the average British boarding school have risen to £22,059, top
English-language schools on the Continent average ¤15,400 (£12,000). Hilton
College, one of the most exclusive boarding schools in South Africa, charges
129,000 rand (£8,600).
While parents need to take flights into account, it still works out cheaper
than boarding at Eton or Winchester, where the cost is almost £28,000.
Draw against your pension
If you are over 50, you can release funds from your pension while continuing
to work. From 2010, you will only be able to do this if you are over 55.
Under rules introduced in 2006, you are allowed to withdraw up to 25% of your
pension as a tax-free lump sum. If you are in a company scheme, you should
be able to release the cash and carry on working. If you have a personal
pension, the remainder must be invested in a drawdown plan where it stays in
the stock market.
Before the rules changed, you had to start drawing an income from this as soon
as you had released the tax-free money, but that is no longer the case. And
you do not have to draw it down in one go.
Tom McPhail of adviser Hargreaves Lansdown said: “Many parents have been able
to make substantial contributions to their retirement savings in recent
years and this may come in handy now when budgets are tighter for such
things as school fees. However, I recommend seeking financial advice as you
need to be certain your income in retirement is sustained.”
Bursaries and scholarships
Most private schools offer scholarships, usually for gifted children, which
can discount 100% of the school fees. Bursaries are also available which
provide financial assistance schemes. Parents should contact school bursars
for information.
Some 31% of private school pupils received help with their fees in 2007,
according to the ISC.
Vicky Tuck, principal of Cheltenham Ladies College, which offers bursaries
that start from about 15%, said: “The means-tested bursaries are assessed on
a case0-by-case basis for new entrants and girls whose parents' financial
circumstances change. Particularly where they are part way through an
examination cycle, it would be detrimental if they had to leave.”
The ISC's information and advice service (www.isc.co.uk) is free and has a
helpline on 0845 7246657. Emetis is an online independent schools guide with
bursary advice and league tables at www.emetis.com.
Prepaid fees
Most private schools also offer fees in advance schemes, where you pay in
advance and the school invests it on your behalf. The school can generally
earn interest tax free because of its charitable status, which is passed
back to parents through higher returns.
However, while some schools offer returns of up to 4.5% - equivalent to 7.5%
for a higher-rate taxpayer - Eton offers only 2.5% on fees paid upfront.
You are also betting school fees will rise by less than the return you are
getting. If not, you will need to top up each year.
Case study: 'We've sent our boys to South Africa'
Bill and Debbie Wiggins sent their two boys, Ben and Theo, to South Africa's
exclusive Hilton College. They believe it offers better value for money than
UK boarding schools.
Bill, a property developer, who attended a private school in England, met
South African expatriates through work. When it was time to send his eldest,
Ben, to school he decided on Hilton.
South Africa offers better weather and an outdoors lifestyle.
"There is still an emphasis on manners and school spirit which I admire,"
Bill said. "I choose to visit three or four times a year so it doesn't
work out as cheaply as it might for others, but the cost is still lower than
in the UK."
