Money: School fees without pain

Frances Way looks at strategies for meeting the cost of private education

Even Labour leaders these days publicly accept the advantages of private education for their own children. School fees are an enormous financial drain but one that many parents feel is worthwhile. But few parents of any persuasion are rich enough to afford to pay private school fees out of current income. It costs roughly pounds 65,000 to see a child through the independent sector from the age of 4 to 18.

They either have to borrow and repay later, or start saving in advance. Fortunately there is a growing choice of schemes to meet both alternatives.

Investment plans to meet the cost of school fees can be started years before your child is even a twinkle in the eye. The earlier plans are started the greater the savings, but financial planning can also ease the burden of payments for parents whose children are already in education. It may mean the difference between keeping your child at the same school or facing the disruption of changing schools.

There are a large number of financial advisers eager to give advice about investments. Dick Davison of the Independent Schools' Information Service (Isis) - recommends choosing a firm that is genuinely nationwide and a specialist in school fee planning. "Advice needs to be tailored to a clear knowledge of what is required, or there might be a lot of product- shifting."

You should establish whether the financial adviser is independent or tied and so limited in the number of choices he can offer clients. Most school fee advisers make their profit by receiving commission, which they are obliged to disclose in accordance with the Financial Services Act. Some firms, such as Whitehead and Partners, will give clients the choice of paying an hourly fee instead.

Isis does not give financial advice but can refer parents to specialist firms when requested. It publishes a variety of leaflets, including school fees, as well as offering consultations on all aspects of independent education.

When a parent is able to start investing before the children start school, the emphasis is on building up as big a reserve as possible to draw on when needed. Advisers should investigate your individual assets and needs and devise a plan that spreads investments over high and low-risk options to combine security and growth. The plan should be designed to meet your preferred school's fees, or the average fees for your area if you have not yet chosen.

In most cases it is not possible for parents to invest sufficient sums to cover fees due entirely, but it is possible to generate 50-75 per cent of the fees. Investments may be made by lump sum or monthly payments or a combination of both. It is worth considering whether doting relatives would like to make a contribution.

Typical investments would include PEPS, Tessas, unit trusts, investment bonds, with-profit endowments and bank or building society high-interest accounts. It is of course possible to "do it yourself", but financial advisers will also be able to offer tax planning.

Any investment needs to take account of the fact that school fees rise inexorably each year. Last year they rose on average by 4.2 per cent (compared with a 2.6 per cent rise in the RPl). School fees are largely driven by the cost of teachers'salaries, and even if salaries are not exactly soaring, as parents demand lower pupil-teacher ratios more teachers are needed.

Many parents who already have children at school entered the private system in the affluent Eighties and are now struggling to meet the fees in the leaner Nineties. Parents often fall into difficulties because they underestimate the hidden costs of private schools (uniforms, books, sports equipment, travel, after-school activities, expeditions). Unexpected changes in circumstances can put the continuation of private education in jeopardy - loss or lowering of income, death or divorce, the patter of more tiny feet.

Nigel Townley-Berry a financial adviser at Mason and Mason, says, however, that he cannot recall having to tell a parent there was no option other than to remove the child from the school. The key is to reduce the annual outgoings and improve the parents' net disposable income.

Typically, savings can be made by reorganising the family finances and freeing up income for fees. Sometimes all that is needed is a scheme to pay fees monthly rather than termly. Poor performing endowment policies can be changed to better performing PEPs. Outstanding loans can be consolidated to reduce interest charges. A reserve fund can be established, supported by an investment plan. Fees can be drawn from the fund as and when needed, and the investment plan used to repay the facility.

Parents often stoically struggle to continue a child's private education, but in the face of unemployment, illness or death, continuity can only be achieved if an adequate insurance policy has been taken out. The usual no-fault qualifications will apply, and how much and for how long is covered will depend on the policy.

Other options to consider are the assisted places scheme and scholarships and bursaries. The assisted places scheme is means-tested and there are a limited number of places per school. Schools usually select pupils according to their performance in tests and interviews. The future of the scheme on the election of a Labour government is uncertain. Scholarships are based on academic performance and may cover all or only part of the fee. Bursaries are awarded by schools in cases of individual need and do not usually meet the full cost of fees.

The national office of Isis can be contacted on 0171 630 8793.