Despite the fact that many of us are struggling through the recession recovery and the speculated (or not) threat of Brexit, private school fees and University fees have rapidly increased over the last decade and are showing no signs of slowing down. According to the Independent Schools Council, parents hoping to send their child to a private school will have to pay on average £4,000 a term and Universities are charging £9000 per year and this is before the cost of living.
Fortunately, with careful financial planning, there is no reason why you shouldn’t be able to afford this so here are a few basic ideas to think about to help get you started.
Saving
If there is anything parents should take away from the cost of school and university fees, it is to start saving early. Setting up a savings account when or even before your child is born, is a great way to ensure that you will have a sufficient amount of money to spend on their education.
The great thing about having a savings account is that you will always get back at least what you paid in plus any interest you have earned. Setting up a monthly standing order is simple yet effective – putting aside £100 a month for ten years gives you savings of £12,000 (excluding interest) which is nearly a fund for a whole year of private school education or one year university fee with extras.
Investment Funds
Putting money into investments can potentially be a great way to raise capital to help secure your child’s future. The longer the term of an investment, the more risk you can afford to take to build up its value. Disregarding tax, if you can invest £200 per month and achieve an average return of 6% over the course of a decade, you will have accumulated £33,500.
Whilst the stock market has been hugely volatile in recent years, investing experts say that for those looking to grow their funds, it still remains the best option. Please contact an independent financial advisor for more information about the investment opportunities available to you. However they are risky and need careful consideration.
ISA saving
Most banks and building societies offer Individual Savings Accounts (ISAs) which have the massive advantage of being tax-free. A cash ISA generally only contains cash so there is no risk to your money. However, they can also be made up of cash, and/or longer term investments like stocks, shares or insurance.
Parents can now set up Junior ISAs for their children which is an excellent long-term and tax-free method of saving because the money can’t be taken out until your child is 18. Children cannot have a Junior ISA if they have a Child Trust Fund (CTF) account so please contact an independent financial advisor for more information about any restrictions involved. Saying that, Banks change these terms all the time and it is always good idea to see what is available at the time you are actually opening one.
Mortgaging
It is not uncommon for couples to use schemes such as offset mortgages and re-mortgaging to raise the funds for private education. Properties often hold the wealth needed to shoulder some of the costs and this method has the added bonus of being tax-free. As well as this, rock bottom interest rates mean very cheap mortgage deals for those with larger equity in their home – stay below a 25 per cent equity level and you can fix for five years at below 3.5 per cent. Interest rates will vary and this is another detail that has to be checked before making choices.
Homeowners should note that re-mortgaging is not an option if they can’t afford the higher interest rates or repayments that going over a set equity level would bring. This is crucial to consider as it is a risk.
Inheritance Tax
Families often use grandparents as a key financial source when funding school fees due to the benefits of inheritance tax (IHT) savings. IHT is not incurred by those who contribute a regular amount from their income, assuming the money donated does not affect the lifestyle of the donor and thus force them to use savings.
Additionally to this, a lump sum of up to £3,000 per grandparent per annum can be given as a gift and will be free from IHT if the person making the gift survives for seven years. This means that if a gift of £6,000 every year for seven years was given, a total of £42,000 would be raised to put towards your child’s education which can go very long way whether you are considering private school or University.
Apply for a scholarship or bursary
Means tested bursaries are available in the UK private schools and this is something you should definitely consider looking into.
Many parents apply for bursaries and scholarships to supplement the cost of education fees. With many families feeling the pinch in the UK, and as of recently the government encouraging collaboration between private and state sector, private schools have to do more to attract pupils so it is well worth seeing if your child is eligible. Schools offer scholarships and bursaries for pupils who can showcase a particular talent in sports, academia or the arts and a discounts of up to 50 per cent may be available for successful students.
There are certain restrictions and requirements when it comes to applying for bursaries and scholarships so please be sure to contact your school of choice for more information.
Move Home
One alternative to paying for private schooling is simply to move. There are towns that are served almost entirely by good state schools that can rival private schools so there may be no need to send your child to private school at all.
Making safe investments
There are lots of companies out there who are willing to help you to invest your money but how do you know who to trust?
• Read reviews online – this is a great way to find out what people are saying about companies and the experiences they have had with them.
• Get references – investing your money is a big decision that will affect the lives of both you and your family. Don’t be afraid to ask for references, check up on them and speak to them about their experiences with the company.
• Use your accountant or financial advisor – these professionals are trained to know the best ways to make your money work for you and will also be able to recommend reputable companies for you to use.
by Geoff Dowling FCCA ACMA CGMA ACIS
Please note that all advice in this article is the opinion of the author and we do not give professional investment advice. For more information about any of the subject matters discussed above, please contact your own financial advisor.