School Fees Rising? Don’t Fear the Bursar’s Call

School fees. Few other subjects have the same capacity to kill holiday dreams and induce a cold sweat. They’re also higher than ever now. But there’s always a way to cope. We outline the key issues and some of the most workable solutions below.

Take VAT!

If you send children to private school, the chances are you’re sorting out the payments around now.

The chances are also that they’ve never been higher.

That’s partly because of the Government taking away the VAT exemption for private schools. This additional 20% is most likely to be borne by parents. It’s hard to see boards of governors absorbing the costs.

Some analysis says this will increase the average annual spend by £3,468 – from £17,128 to £20,596. Over five years, that’s £17,340… practically another whole year’s worth of education.

All averages mask the spectrum of numbers. Some of them are remarkably high. If you’re in Redcar and Cleveland your average fee spend will leap from £43,000 to £51,600. Moray in Scotland jumps almost as far: from £35,280 to £42,336.

At the other end of the spectrum, Westminster (the region rather than the school) sees a more ‘modest’ increase, from £27,199 to £32,638.

But Consider This

You probably know the above by now. Schools tend to be good communicators about such issues.

But one thing that’s lurked beneath the headlines in recent years is the drastic increase in private school fees, unrelated to the VAT change.

An influential think tank did a cracking report on this a few years ago. The data isn’t hot off the press but, as it’s looking backwards, I think that’s good enough for us.

The lower line is state schools, and it doesn’t move much, but the yellow private day school line ticks ever upwards. In 2022/23, twice as much money was spent on private school pupils versus state pupils compared to 2009/10.

The report also cites, “a 20% real-terms rise in fees since 2010/11 and a 55% real-terms rise since 2003/04.”

So, if your school’s bursar is talking about yet another inflation-busting rise in fees, it’s not all down to VAT, or business rates, or some other state intervention into private education.

How to Cope

The problem is that fees only appear to be going upwards. Demand remains high (the 2020 census shows the highest level of private pupils since 1974) and the seemingly inexhaustible supply of overseas students is likely to nudge fees upwards not downwards (they comprised 4.6% in 2010 to 5.5% in 2020).

So, What Do You Do?

If we set aside the financial assistance that schools offer (bursaries, scholarships and so on) and also the different payment plans (yearly versus monthly), you have about six options:

1. Ask the bursar if they have a pay-in-advance option. Given fees rise annually, at least with inflation, you can lock in a lower rate. Have a look at the terms and conditions though because, as with any scheme where you tie your money up on a multi-year basis, you need the liquidity to be able to withdraw it if necessity dictates.
2. You could always pay it from income. If you have the wherewithal this may be the simplest and cleanest option. If not, other solutions may be kinder to your wealth and wellbeing.
3. If we’re talking about existing investments, it may be that you have a ready pot of capital from which you can withdraw the appropriate amount every year, leaving the remainder to continue growing. If you do this, we must emphasise the importance of planning – because withdrawals can unbalance your asset allocation, leaving you vulnerable to market moves.
4. Your family might help. After all, grandparents can gift up to £3,000 each year. That might add up to £6,000 per annum.
5. You can use your home as security on additional borrowing, to lock in slightly lower rates. At the time of writing, average mortgage rates were in the 4.5% area, depending on the borrowing term.
6. Then there’s unsecured borrowing. This is always a more expensive option. For example, at the £20,000 level you’ll probably have to pay around 5.9% for it.

In short, there is very likely to be a way ahead.

When we work with clients on school fees, most use more than one option. They don’t put their eggs in one basket when it’s growing – so why should they take the same approach when they’re drawing down?

Many will even counterbalance the lower rates on borrowing with the higher rates often available in investment markets. After all, we are evidence-based investors and the evidence shows equity markets have averaged 6.3% a year from 2003-2023.

We help with school fee planning all the time. If you’re unsure what to do right now – or if you’re planning for the terms and years ahead, we can help you. Please give us a call on 020 7467 2700 or email us at hello@firstwealth.co.uk.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.