Planning and saving for school fees

[Heatherbell1978]

For various reasons we're seriously contemplating private school for DS1 (P4 now) with a view to him starting for P6 or P7 and then DD following in a few years time, ideally for S1. That would give us 5 years of one child fees before having to consider two lots together.

We're in Scotland so I'm talking annual fees around £13k rather then some of the London ones I see quoted on here!

We know we can afford one child fairly comfortably - we're not 'wealthy' but would be able to pay fees for one as well as have an annual holiday and a bit of contingency for things.

But we need to plan ahead for DD and I'm interested to hear how people did that if you're in a similar point. I've worked out we could save a bit of a pot and then potentially take a bit of equity out the house to give us a pot to drawdown every month. DD would start in 2029 fir context.

And yes I know state schools exist. My catchment one is performing awfully just now and DS is behind as a result of Covid so just thinking about what's best for him.

Fees won’t risk 10 percent every year. 5 percent long term I think is relatively safe estimate but do factor in a high increase this year (2023) and in 2025 due to VAT and then grow it from there. In a couple years time you’ll have greater visibility on inflation anyhow but if you can afford it using reasonable assumptions now, I’d keep planning / saving for it and see how it goes.

tbh I'm realy surprised that there aren't standard financial products that are specifically tailored to this kind of circumstance. You should be able to sign up for a deal when your child is say 4 years old where a monthly payment amount is agreed with an index-link to inflation, and you pay that index-linked amount steadily over the whole course of the plan - For the first 7 years until your child is 11 and gets their place at school, you are building up credit. Over the next 4 years you are still paying the same, and the plan pays out the fees, eventually running down the savings backlog to zero, then in the last 3 years of the 7 year run of senior fees you start accumulating debt gradually as you are paying in less than the plan is paying out on fees, but the plan continues to run on for a further 5 years or so all with the same simple monthly payment until that debt is paid off.

Obviously it's possible to self-manage such an arrangement but it's a faff and the parents who are likely to be needing to balance finances in this way are likely to be time-poor. Getting a plan set up when the child is 4 makes a lot of sense if you have been using a full-time nursery because when school starts you are suddenly much richer, and tidying the money that used to be nursery fees away into a pot for senior school fees is easier if you never allow yourself to get used to the additional disposable income.

Absolutely. I'm kind of frustrated that this is only something I'm considering now as we had just ruled out private with 2 kids based on monthly income but actually with a pot saved up to drawdown on its within reach. I just wish I'd started creating that pot sooner...

You can change the ages and the fee levels for those years. You can add in inflation and fee rises

We have done fees for 1st DC out of savings (plus some GP help ). 2nd child out of earnings but I was part time so was able to increase my hours when DC2 started.
Is it likely 1 of you could increase hours or have scope for higher earnings in future? Can you delay DC1 to P7 or even S1 start to allow longer to save?

Remember to factor in extras such as considerably more expensive uniform, additional travel, compulsory school lunches and trips etc

2 factors to be aware of when planning finances - our fees have risen quite a lot in recent years. They managed to keep low % rises for 1st few years we were there but not in more recent years, they're now nearly £2k more per annum than a few years ago. So your £13k starting fees now could well be £15k in a few years time. Do you think your salaries/savings will rise proportionally? You could ask around families you know who are at your chosen school about % rises over last few years, or just ask the school?
Remember the fees usually get higher as you go up the school too so check that out. So in our school S4-6 is £1.5k more than S1.
Also I now have 1 at university, don't underestimate the expense of
students! Minimum loan doesn't even cover accommodation costs in some cities so you may well still be providing considerable financial support to a student while still paying school fees for DC2. Granted not on level of school fees but still feels significant cost.

You don't need to answer all these questions here, by the way! Just thinking out loud.

Also @Heatherbell1978 if your aiming for DC mainly being there for senior school just check your basing your calculations on the senior school fees. I'm not aware of Edinburgh schools with £13k fees, most are between £14-16

The school I'm looking at is currently £11.5k p/a for P6 and P7 and £14.6k for secondary. Another is slightly less, another slightly more. I've factored in around a 5% rise each year and no rise in DH and I's salaries which is obvs not realistic. He's just moved jobs and negotiated a decent salary so we will assume that won't budge for a bit - I've just been promoted within a large company and at the bottom end of a pay scale so I think it's fair to say my salary will increase.

For context before pension deductions and tax our combined income is £166k. We put a fair chunk into pensions which we'd prefer not to compromise on.

HyuNis and yes I think we'll aim for P7 for DS1 - gives us a bit longer to save plus see what a potential Labour government might mean! I do worry that only gives us 2 'chances' to get in. Maybe we'll put him forward for the P6 assessment to see where he is this year and take it from there. Hoping that DD would get in easier if DS there already so S1 feels reasonable.
All this analysis has made me realise that an IFA would be helpful!

Remember if your older child goes to university you may be supporting them in some way financially as well , so it is not just the three years of them at private . I’d be thinking what is the potential for you and your husbands salary increasing over the schooling years. If you are in roles where there is opportunity for good promotion and salary increases I’d say go for it. If salary increases are going to be cost of living or small , you will struggle even with saving. As other posters have mentioned all the uniform, travel/bus and the extras at private are very expensive so you need to factor this in as well.

I'd definitely make sure you have a contingency pot saved up for surprise extras. Our prep just decided to take a leavers' trip abroad and gave us 6 weeks notice to pay £700 in full. 🙄

On your income and with such a low mortgage those school fees should be fairly afford unless you have some hidden costs. Do save up as much as you can beforehand though. I think its important to have two years worth of fees to hand for emergencies as you wouldn't want to move kids in the middle of GCSEs for example. If you have two years of fees saved, even if you lost your job, you could get them through GCSEs and then move to state for 6th form.

If your pensions are in good shape, using £50k of your home equity as extra emergency savings makes sense though it won't be as easy to get extra borrowing when you really need it (like after a job loss / medical emergency). If this is your plan, at the next opportunity, I'd switch to an offset mortgage and take out the extra borrowing. Leave it in the offset account so your aren't paying extra interest on the borrowing unless you need it and that way you'll be able to easily access if you do need it down the road.

I agree with your approach to maximise your pensions though and not jeopardise your retirement for private school fees! In a couple of years based on what Labour do in 2025 and how your salaries and school fees have changed you can reassess when the right time is for your soon to make the switch to private.

Thank you - I hadn't considered an offset mortgage but when I go for financial advice I'll see if that's an option. No hidden costs but at the same time no substantial savings to speak of. We tend to prioritise pension and mortgage overpayment when we have spare cash and for emergencies we can access credit cards (huge credit limit between us, not utilised though!) I actually have Premium Bonds of £20k saved up which I squirrelled away in my 20s but that is for absolute emergencies!!

If you speak to an IFA, they'll tell you that you should typically have 6 months worth of costs saved as an emergency fund.

Pensions are very efficient form of long term saving but if you can invest your money at a higher rate of return than your interest rate on your mortgage then you'd be better off financially investing it rather than paying of your mortgage.

If you don't have ISA's that will be the most efficient way to invest. In general, depending on your risk appetite and time horizon you can include a mix of shares and bonds (rather than just cash) via an ISA. However, for short time horizons (less than 5 years) cash and bonds will probably suit you at the moment. You can currently earn 4.2% on cash savings in an ISA which is much higher than has recently been the case.

I actually have Premium Bonds of £20k saved up which I squirrelled away in my 20s but that is for absolute emergencies!!

You'd get a higher return than the average rate of premium bond wins by putting that into the linked savings account on an offset mortgage. It wouldn't be sensible to get an offset mortgage without a decent chunk in the linked savings account, as the interest rate for an offset is slightly higher than an equivalent normal mortgage. You need to ensure that there's enough in the linked savings to more than make up for that difference and be better off with a normal mortgage and an unlinked savings option.

How old are you? From what I’ve seen some of the school fee planner people basically suggest remortgage and pension as a way to pay fees in a tax efficient way. Not sure if that only really works if you can access your pension during fee period but I sort of see the logic of using equity to remortgage on the assumption you could use some tax fee lump sum to pay off the mortgage later on.

We are in a similar position where one set of fees doesn’t seem that bad especially as nursery was ok but two would be much harder. We are at a state primary and will save nursery fees once we stop paying them. Our plan is to save up so we have at least the period of double fees (4 years in our case) covered for one child. Until the second child starts we’d pay out of income for child no.1 and not touch investments until the double fees start which would buy us more time in the market. I’d be more comfortable with a bigger cushion but I think that is our minimum to contemplate going private.

You should be able to get sibling discount for your younger child (assuming they go to the same school). Once you’ve chosen the school ask whether they offer a payment plan. This isn’t generally advertised but some schools allow you to pay in advance instalments (kid of like a savings plan) and in return you’ll pay the fees for future years at todays prices rather than what they may rise to in future.

Definitely try to get uniform second hand and/or buy what you can from supermarkets (DSs school trousers, shorts, shirts etc. all come from Asda & look exactly the same as the official school ones but are a fraction of the price).

DSs school also takes childcare vouchers for after school & holiday clubs/extra curricular activities, which really helps.

I agree that it’s sometimes ‘cheaper’ to go private than move to the catchment area for the ‘good’ state schools. In our city we’d be looking at an extra £1m for a much smaller house!

This is actually what we're planning - I'm 45 so in 10 years can access the 25% tax free sum from pension. I know that's changing to 57 but I think staying at 55 for existing schemes.
We really hammer money into our pension and have budgeted we can continue doing that while paying DS school fees (and hopefully when both of them are there) so in 10 years time when I have a 16 and 18 year old we should be able to repay the mortgage including the equity that we took out. That will be the tail end of school fees but still give us a bit of a breather.
Don't get me wrong, private school costs means we'll be retiring later than we'd hoped but it does feel worth it.

The difference is, the house would be an asset. You would expect the house to retain its value or even increase in value. The school fees, however, are fine once they’re spent.