Prepaying fees

[SloopB]

What kind of discount have people been offered for prepaying fees? I'd like to pay for the next 3 years up front as I reckon it will save us the 5% increase each year but also I was hoping for something off as well.

Never heard of this. What if something happened like your child was unhappy at the school, you had to move or the school’s quality declined?

Or the school goes bust - happened to 2 near where I lived in the last few years.

You can get it back if you want to move schools.

We got something like 2%.

Discount.
Sorry posted prematurely

I'm not worried about the school closing. It's been there hundreds and hundreds of years with an attached senior school. If we left they'd give the fees back. With savings rates so low I figure this makes more financial sense.

Our school offers a scaled discount depending on how many years you pre-pay. If you pre-pay the full 5 years I think you get a 5% discount and also benefit from not having to consider the years increases obviously.

@steelseries That's not a bad discount. I was hoping for more like 10% but that seems like it's unlikely.

Is the benefit not that you pay at current fee level rather than face annual rises?

@LIZS Yes it saves you the compound interests hikes every year plus they usually offer a discount off the total.

@SloopB At our school it’s a 2% discount I.e. what you’d get if you were to put it in a high interest savings account yourself. If you think about it, that’s all they will do with the money received in advance. Interest rates are currently extremely low.

Our financial advisor recommended paying two to three years in advance to protect against fee increases, not to get a discount.

Think of it as a loan. You need to think about whether you are prepared to offer a very large unsecured loan to a small business about whose finances you know very little.

Lots of schools used to give a pre-pay discount. You as a parent would give them (say) £100,000 upfront for five years’ fees, the school would buy £100,000 of risk free UK government bonds (gilts). When I was at school, 5yr gilt yields were about 10% - or £10,000. But unlike parents, who have to pay tax on investment income, schools with charitable status do not. So they would split the tax free risk free returns with the parents. You the parent would receive £105,000 of education for your child for the discounted cost of £100,000, and the school would trouser £5,000. Everyone happy. (Put another way, the Government paid more for the privilege of borrowing from the school than the school paid for borrowing from you. Which is odd because the UK Government is a safer credit risk than a school, but more on that in a minute….)

These days, schools are reluctant to offer such schemes because school fees have been going in the opposite direction to bond yields.

1. yields are so low today (about 0.4% for a 5 yr gilt compared to 10%+ in the 1990s) that there is little return for the schools investing the £100,000 in govt bonds for five years, and even less return to pass on to parents.

2. at the same time, school fees have been rising year on year way above the rate of inflation.

So schools have more to gain from parents NOT prepaying - which is why you so rarely see these schemes advertised anymore.

The only exceptions are probably schools who either:

1. are seriously worried about their pupil numbers, and hope to lock parents in by offering prepayments, or
2. schools which have run out of cash and need to raise working capital urgently to pay teachers salaries and electricity bills

In either case I would be extremely nervous about making an unsecured £100,000 loan to the school because there is a very good chance it might go bust and you lose it all. Just like any lending, the interest rate (ie fees discount) should reflect the risk you are taking - so you’d want a big discount and a very close look at the T&Cs.

@NewIdeasToday

Never heard of this. What if something happened like your child was unhappy at the school, you had to move or the school’s quality declined?

DC’s school fees were prepaid from year 7 to 13. DD got a place at grammar school for sixth form and the balance of her school fees were refunded quite promptly.

@Stickystick That is a good way to look at it but I'm not at all concerned about the risk. It's a very selective school that's been around longer than quite a few countries! Not many small businesses have been around for 400 hundred years and have people falling over themselves to be customers. It has no trouble filling places to put it mildly. They are not advertising a prepayment scheme. I'm the one asking them if it's possible and if so what discount they would offer. We have friends at other private schools who have done the same so I figured we would ask on here what sort of discount people have gotten.

@Stoolpigeon21 How did she find the transition to grammar? What about the level
Of sports/clubs etc?

@sloopb

If the school genuinely believes it will have no trouble filling places then the answer you will get is “sorry no discount”. What other people say they have extracted from other schools which might be in less secure positions is irrelevant.

For schools with no trouble filling places, there is no upside for them in offering prepayment, only downside. They won’t make any money from reinvesting the prepayment, and they will be exposed to inflation risk on salaries and other costs.

[quote SloopB]@Stoolpigeon21 How did she find the transition to grammar? What about the level
Of sports/clubs etc? [/quote]
She loved grammar school - no problems with transition socially or academically. She said that some people coming into 6th form from other schools struggled with the different teaching style (no spoon feeding) and others with the fact that they were surrounded by some extraordinarily intelligent/high achieving students and were no longer top of the class. She was fairly average in the grammar school but wasn't bothered. She is/was quite geeky so the clubs available suited her - I think if you had a very sporty children, you would need to look for outside clubs (at least that was the case at her school)

We got offered 2.4% discount with no protection against fee increases. We didn't think it worth tying up the money for that - I'd have been more inclined if we'd been protected against fee increases.

@stellagibbons

We got offered 2.4% discount with no protection against fee increases. We didn't think it worth tying up the money for that - I'd have been more inclined if we'd been protected against fee increases.

Quite right - risk not worth the return. Particularly as your return will be eroded by inflation. You would be better off investing it into something that will give you more of a return for less risk - a multi asset income fund maybe.

I know someone who prepaid Radley and no discount was offered. Just no fee rises.

I don't know of any secure investment vehicle that will give us more than 5% annually. We are talking about the next 3-5 years so fairly short term. I wouldn't risk the money in a fund. If we are protected against the yearly fee increases which have been running at 5-7% and they offer 2% off the total surely that is our best bet?

@SloopB

If a financially healthy school which can fill their places several times over offers you a 2% discount and no fee rises then bite their arm off. But they won’t.

I do think, by the way, it’s funny how people are worried about risking money investing in a highly diversified investment portfolio but not worried about risking the same money by lending on an unsecured basis to a single business/charity, with no proper due diligence on their financial position... No professional lender or investor would ever do that.

Make sure you get the extra x% for each year out

With interest rates as they currently stand you do not get much of a discount -2 to 3% max.

The big advantage though is that if you die the fees are outside your estate for inheritance tax purposes - and that could be 40% of £200000+ if you are looking at senior boarding fees. Particularly pertinent if grandparents are paying.

My DD was at a GDST school and they refused to give any discount for prepayment of fees for the reasons mentioned above, mainly that they can’t get any decent interest paid on their investments either, so have nothing to pass on. My DS’s London prep school laughed when I requested it, for the same reasons.

I agree with a poster above. I would be wary of any school that offered this as they may be desperate for the money.