Rising school fees could take private education out of financial reach for more parents09 May 2022
Private education has long been considered a luxury afforded by the few, but for many middle-income earners sending a child to private school was still achievable with a careful savings and financial plan. The recently published annual census from the Independent Schools Council (ISC), however, indicates that fees are now on the rise once again at a time when the sector is also at risk of seeing its costs spiralling upwards. This could force many school heads to make difficult decisions around fees and in turn parents to make difficult decisions about how to educate their offspring.
Average private school fees increased by 3% in the 12 months to January 2022 (when the census was carried out) – the second lowest increase since 2000, according to the latest ISC report census – with the increase lower than inflation of 5.5% for the same period. As most private pupils attend day schools, the average day school fee has increased 3.1% to between £3,000 and £5,500 per term.
Despite the rising fees and the impact of Covid-19 on the sector, pupil numbers at independent schools rose to 544,316, up 2.2% from the 532,237 attending in 2021 – and surpassing the record high of 537,315 seen in 2020 before the pandemic struck.
What is notable about the overall 3% rise in school fees, however, is the big change on the previous 12-month period when two-thirds of the schools completing the census either froze or reduced their fees to compensate parents during the COVID-19 lockdowns when pupils were forced to sign into lessons from home. As a result, fees only increased 1.1% in the 12 months to January 2021 – the lowest rise in average school fees since 1974 - with many schools either freezing or reducing fees. That was a welcome relief to parents as they faced the threat of job loss or a reduced income during pandemic closures.
Now a storm of financial challenges, many of which have become evident since the ISC census was carried out in January this year, are set to put the sector under more pressure.
Alice Haine, Personal Finance Analyst at Bestinvest, the online investment and coaching platform for private investors, said: “While the average rise in private school fees was 3% - the second lowest increase since the turn of the century, private schools are being hit by a storm of financial pressures in the wake of the pandemic, including rising energy, labour and catering bills as the cost-of-living crisis escalates, supply chain disruption persists and the fallout from the war in Ukraine takes hold.
“This will put school budgets under strain and leave heads with difficult decisions to make going forward. This includes whether to hike fees to ensure they can pay escalating bills and continue to deliver the quality education expected of a private school, or whether to strive to cut costs to keep fees affordable for parents who also might be struggling with financial pressures amid the quadruple hit of rising inflation, soaring energy bills, higher interest rates and increasing taxes.
“With the cost-of-living crisis taking hold and fees likely to rise further, I would not be surprised to see some parents who were planning a private education in the future to reconsider that decision in favour of a cost-free state education.
“Sadly, for some parents with children already in the private system, the added blow of rising school fees when they are already grappling with higher household bills may force them to move their child to a cheaper independent school or pull them out of private education altogether. If this happens, it means a private education really will become an option only for the super-privileged, those with a robust financial plan in place or parents with generous grandparents willing to contribute to the costs.”
School fees are now eye-wateringly expensive
“Attending a private school comes with a hefty price tag. The average annual term fee for a senior day pupil now varies from £3,000 to £5,500 per term depending on which stage of the education your child is at.
The fee at a junior day school for example is £4,827 per term, versus £5,625 in the sixth form. If the same child was a day pupil at a boarding school, the fees would be £5,495 at a junior school and £7,684 in the sixth form.
While the average boarding fee is £12,344 per term, at the most prestigious public schools, parents are expected to shell out over £40,000 per year. This means that the cost of sending a child to a private boarding school for their secondary school education could easily be well in excess of an eye-watering £280,000 for a seven-year stint once you factor in all the extras that come with a private education such as uniform, trips, clubs, sports kit, charity donations and gifts for teachers.
Source: Independent Schools Council, Annual Census, 2022
Good planning is key to making private schooling achievable
“If sending your child to private school is one of your big life goals and you don’t have pots of spare cash sitting around, then you must plan early to ensure your finances are robust enough for the expensive road ahead.
The first step is to decide what age you want your child to start attending a private school. Some parents will choose this from the outset, when the child is aged four, or perhaps prioritise entry at age 11 or 13 to expose their child to a private system during their key exam years, in turn giving them some financial wiggle room to save.
Your second step will be to determine how much you need to pay the fees, factoring in the cost of a private education while making some assumptions on inflation and how much they will go up by over the years. To make it slightly more affordable, one option is to choose a lower-priced school with less frills but still offering the perk of smaller class sizes to make your goal more realistic.
Once you’ve committed to your goal, the third and final step is to save towards it, however, sticking money into a regular bank savings account will see inflation erode any gains made in interest making your money very lazy. Instead, a long-term, diversified investment strategy has the potential to deliver a healthier return as your money works harder for you. The key here is to match your investment strategy to the goal you need to hit to pay school fees for the entire duration of your child’s education.
Higher risk investments such as equity funds can be used to fund costs that are many years away, with cash and less volatile assets used for the earlier years or for a private education that will start sooner rather than later.
It is also wise to make your investments as tax efficient as possible. Taking advantage of your £20,000 ISA allowance will let your money to grow in a tax-free environment leaving you to free to withdraw money to pay the fees when the time arises without being liable for capital gains tax.
Don't contemplate a ‘pay-as-you-go approach’
“Paying school fees on the go is a high-risk strategy as life has a habit of throwing curveballs along the way such as job loss or large, unexpected costs that eat into your monthly expenditure – meaning a secure income vital for this strategy.
“Financing a private school education entirely from take home pay is generally unrealistic – even for those with high earnings – when you consider all the other essential costs that need to be met in an average month such as housing, food, energy, transport costs, savings, investments and insurance. This is even more challenging in the current inflationary environment; with prices rises expected to hit 10% by the end of the year, according to the Bank of England’s latest estimates, real wages are falling forcing consumers to reassess how they spend.
“This is why parents that do want to go down the private education route must lock in that goal as early as possible to ensure they have a viable plan in place to meet these costs. This will also ensure they do not embark on a journey that they may not be able to finish. The last thing any parent wants is to remove their child from a school - disrupting their studies and friendships in the process – because they have run out of money.
Turn to the bank of grandma and grandpa for support – but don’t ignore the tax factor
“For the lucky ones, a frank conversation with the grandparents might secure help with fees as family members invariably like to see the younger generation benefitting from a solid education.
Generous grandparents can be pivotal in making a private education happen, but they must tread carefully to avoid injuring their own financial prospects in their endeavour to help their grandchildren boost theirs. The tax implications of giving financial gifts are complicated, so grandparents must read up on the rules first or consult a qualified tax planner who can advise them of the best course of action.
The good news is that grandparents can gift up to £3,000 per year to their child or grandchild with no tax implications at all. But with school fees generally much higher than that figure, that sum will only act as a top-up for struggling parents.
If the plan is for grandparents to fund the majority, or all, of the fees, then they need to consider tax efficient strategies.
In more good news, regular gifts out of surplus income, which do not affect their own lifestyle, are exempt from inheritance tax and could therefore be used towards part payment of fees or other costs.
If a lump sum or lifetime gift is made, this is also potentially exempt from an estate for the purposes of inheritance tax, providing the person who makes the gift lives another seven years. If they die before that time frame is up, the inheritance tax liability reduces depending on how close their death is to that seven-year mark.
A common option used in circumstances where a grandparent makes a substantial gift to finance school fees is to establish a trust on behalf the child. The gift into the trust is a potentially exempt transfer for inheritance tax purposes after seven years. In this situation the trustees retain full control over where the assets are invested and drawn down upon but as the child is the ultimate owner of trust assets, they will be taxed against the child’s income tax and capital gains tax allowances/exemptions, making this very tax efficient.
Other ways to cut the cost of a private education
“Most private schools offer financial assistance through scholarships or bursaries for children who are either very gifted in a particular subject, such as maths or science, or skill, such as music or sport, or can demonstrate a financial need to receive support.
According to the latest ISC census, fee assistance worth nearly £1.2bn was provided in the year to January 2022, an increase of 4.8% on the previous year, with more than £960m originating directly from the school and provided on a means-tested basis.
Many schools are looking to raise more funds to take in means-tested children, though this strategy may be in jeopardy with the current cost pressures.
Some charitable trusts can also help parents in the private school system in cases of genuine need though their criteria for who receives the money is often dependent on social need such as the sudden death of the family breadwinner or parents who get into financial difficulty.
If you have the money, some schools offer a discount if you pay the fees in a lump sum ahead of the school year, while other schools charge less for termly payments over monthly payments. Sibling discounts can also apply if you have more than one child at the same school and some establishments offer savings for children of parents in the armed forces or the clergy in some cases.
With a third of pupils receiving some sort of reduction in fees, according to the Good Schools Guide, you can always try to haggle over the amount you pay particularly if your child has something to offer the school they don’t already have.
There is another option - but this depends on your profession. For teachers working in a private school, a staff discount can apply, which can vary from a set reduction, such as 50%, to fees being covered in full.
Difficult decisions ahead for schools
“From rising utility bills caused by the energy crisis amid the Ukraine war to higher prices inflating salary and catering costs and a shortage of teachers, private schools may be forced to raise fees, reduce scholarships and bursaries, remove minority subjects and slash staff discounts to cover their costs.
Teacher pensions may also come under the microscope after 100s of private schools left the Teachers’ Pension Scheme following the government’s 2019 decision to raise the rate of employer contributions by 43%. While state schools were covered for this hike, private schools are not, which leaves them with yet another cost to factor into their budgets at an already very expensive time.
For school heads mulling the road ahead, all these cost pressures leave them with a difficult decision: cut costs or raise fees and risk alienating parents in the process.”
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