School Fees: I don't think this financial product exists, but would there be a market for it, if it did?

[UhareFouxisci]

I've self-organised something a bit like this myself without a "specialist" financial product for it (and with a relative kindly saying they will help when the time comes) but it seems odd that there isn't anyone in the financial sector trying to capture a long term savings customer with a product like this.

School fees are obviously expensive and obviously out of reach for a lot of people, but they could be closer to being affordable for more people with the right planning.

Say you have a child currently in Y1 of a state primary school. You are happy enough with the state options at primary level but are concerned about the local state options at senior level and would like to be able to consider going private.

The local school fees are typically around £16,000 per year. With your current income and diverting all you can to this, the best you can manage to have spare is circa £6,500 per year - nowhere near enough.

But starting senior school is still 6 years away - so you put that £6,500 into savings, increasing the amount each year to keep pace with inflation. When y7 comes around maybe you don't need to go for private school after all, in which case you have just released a massive windfall of cash to do something else with. Or maybe you do now have fees to pay (which will also have risen with inflation) - so you keep paying in the amount you can but 3 times a year you are taking out a chunk more than you put in, so the balance gradually reduces.

By the start of the 4th year of senior school the balance of the savings account hits zero, and you now need a loan. But by this point you have a 10 year history of regular reliable savings built up, and this is the advantage of a dedicated financial product for this. At the point where the balance hits zero the account converts to a loan account. You continue paying in what you can each month but taking out more than you put in 3 times a year when school fees are due. By the end of A-levels you are significantly in the red - but then school fees are over. You keep paying in for the next 4-5 years and eventually you have paid off the debt.

If something like this existed (and if you aren't passionately against private education - in which case please express that opinion on other threads, thank you) would you use it?

I calculated the maths for how it would work and generated the attached graph.

Is it not just a savings account and a loan? It would need to be secured against something? What happens if you stop paying when school days are over? Where’s the comeback?

But no, I wouldn’t use it. I’ve got 3 kids. I’m not paying schools fees for the next what? 25 years? (Mine are 7, 5 and 2).

Close Brothers offer school fee finance I believe. Not quite the same thing but similar.

It does exist, it's a savings account and a loan.

Yes possibly. I'm nt good with finanicl stuff though.
Would you just tie it to an individual child? There are more complex models which take siblings into account surely

We pay a month amount to an outside company and then they pay the school fees when they are due once a term, we also have savings earmarked to school fees as a back up.
I’m nit sure how this product is any better

Offset mortgage?

We had a School Fees Advisor for a while, and they put together a plan, but it included some quite specialist tax-efficient investments, like EIS schemes etc.

I wouldn't use it. I'd just save independently and choose my own financial products according to the current situation. It would be easier to consult a financial advisor about a save saving plan (you can do better than inflation with a simple 2 year bond anyway).

I wouldn't get locked into a plan on the basis I could afford £6.5k spare a year for the next 17 years - who knows what would happen?

Does your graph include interest?

People just manage to work it out for themselves OP, why do you think they couldn't.
It's saving and taking a loan.

Saving on that timescale you won't want to be exposed to the market so you'll just need to go for some safe fairly low return investment/bond that beats inflation. I would imagine most people would want to just sort it for themselves rather than paying for a specific product.

It would probably need to be a little more sophisticated than a combination of a savings account and a loan. You’d also need to at least make it an ISA - if someone is saving 6.5k a year, that’s well below the annual allowance. Some people also use products such as offset mortgages or other products like the ones mentioned upthread (offshore or EIS etc).

By the end of A-levels you are significantly in the red - but then school fees are over

you're in for a bit of a shock op if you think Uni does not require a parental contribution - assuming the target market for this......product .....is going to get minimum maintenance loan at best they'd likely be looking at least a £4k outlay per annum, and possibly a bit more. and just wait until the "i'm planning on doing a Masters" conversation starts

interesting responses thank you. you are right that there are plenty of savings and loan products out there already, it just seems odd that none of the finance companies are targeting the market of people who think that private school is out of their reach. loans are generally structured to release the whole capital in a single lump sum at the start and then gradually reduce the debt but that is not what a parent paying school fees needs. you would be paying masses of unnecessary interest on money that wouldn't be needed for moths or years.

personal finance advisors have no interest in helping non-wealthy people. I found this out when seeking assistance setting up a personal pension - every single IFA turned down my custom till I found a friend of a friend who helped for free.

@leghairdontcare that particular graph assumed a 1.5% credit interest rate in the savings phase and a 3.5% debt interest in the loan phase - but I set up the spreadsheet to find what starting monthly contribution would reach a balance between credit and debt for any possible combination of interest rates.

I guess an offset mortgage is pretty close to this idea but they always seemed poor value for money to me as the interest rate was so much higher than an interest rate for a normal mortgage that any notional "reduction" bought by the offset arrangement was more than wiped out. maybe that is a clue that if the product I imagined did exist the interest rates would be so rubbish that it would be pointless.

I am curious: do people actually plan so far ahead to take a loan to be able to afford private school at secondary/sixth form level even when costs continue into university? I wouldn't. I would see the need for a loan at secondary/sixth form as NOT being able to afford private school.

The closest analogy to what you are proposing is perhaps in the US where parents save up from a long time ahead to send their children to college. Have you looked into what financial products are offered in the US to such parents?

www.schoolfeesplanning.org/?gclid=CjwKCAiAws7uBRAkEiwAMlbZjt6iAm_eyhgg8-PSi6UDhXjo1ECE356xE3WZxo6165Iqkt7T6sopURoCsQkQAvD_BwE

there are a few companies like this I think

CountessDracula, I love the example of the couple with net worth of 2M, income of 360k and still needing help working out school fees

OP, you can always try and see if there’s a market for what you’re proposing. Tbh, if we were only able to save 6.5k a year, we wouldn’t go down the fee paying route. We’d be worrying about our pensions and helping DC with uni costs and house deposits instead.

@blueshoes it's perfectly normal for people to spread the cost of buying cars and houses that are expensive over the course of a number of years if they can't pay for them in full at the time they need them. Why would education, which some would consider more valuable than a car, be a less appropriate use for some relatively short-term credit? It's only borrowing over the course of 6 years - hardly an astonishing thing to do when it comes to other major expenses which have a significant impact on long term benefits from the expenditure.

I could be wrong but I just don't think there is a culture in the UK of long term saving for private school at secondary/6th form level, like there is in the US of saving for college. Private school fees tend to be paid by grandparents/relatives or parents are well off enough to pay for it (with belt tightening if necessary).

If there is any form of long term savings, it is more informal as other posters on this thread say (which could be used for other expenditure if said offspring does not need/get into private school), rather than parents looking for a private school-specific financial product.

We sort of did this ourselves. Squirrelled away the money for some years, then had school fees, offset by our savings. No different. Excel or some financial product wasn’t taking its cut. If you are putting money away ‘just in case’ why would you give a bit of it an anonymous company?

I always thought about thus. Your idea is similar to what in Germany is called 'Bausparen' - you save for a fixed period of time after which you qualify for a loan at a rate relative cheaper than those who have not saved with the company before. But it is only aimed towards buying a house or renovating. It's not that easy to get a mortgage or a loan for school fees as there is no value against the loan. One can lie and say it's for renovation work but that's - a lie. School fees are also taken into account as a fixed cost, so making remortgaging harder. Not sure banks would offer what you propose as it's high risk, as the loans would basically be unsecured and there is a high chance of default, especially with fees outstripping inflation and wage growth. I wouldn't use such a product as the debt might be to burdensome. I would only consider private if I could afford from income/savings.

I think it's right that there isn't a culture here of going into debt over school fees. Some people use specialist providers to set up tax efficient savings plan for children or grandchildren many years ahead and use these to fund or part fund school fees. People who don't organise themselves soon enough to make that happen or who can't afford it but have some money to save, or just think the fees are too expensive might use the spare money for an alternative - moving house to be near a really good state school. Remember there are a good number of those and lots of people decide it is better to use their spare cash to move and are willing to increase their debt for bricks and mortar in a way they won't for school fees.

This seems the natural step for lots of people - they consider private and realise it's not affordable or would be a massive stretch. Faced with the choice of massive savings and sacrifice over the long term and especially debt into the longer term, they opt for living near a great state school and use the money savedfor housing and also other luxuries. Very many middle class families do this and seem happy with the result.

Who would stretch themselves as your financial scheme suggests - it might be those highly educationally aspirational groups who might be first or second generation immigrants who value education much more highly than most people here. Many wouldn't be able to afford such a scheme or the idea of the debt wouldn't appeal to them, but for some who have been pretty successful, they might just go for something like the suggestion.

I don't think it's quite like buying a car on credit. School fees which require funding for 8 years before starting Secondary and 6 years after leaving it, are a massive burden for a vastly long period of time. And the existence of good state alternatives makes that not very attractive to most.