Testing times: How to afford school fees in the crunch

Whatever the state of the economy, private education is costly, so start saving early. Chiara Cavaglieri reports

Easter is a time when many parents assess where there children's schooling is going. Older children may have exams coming up, while younger kids are ready to take up a place at the local secondary or primary school. Some, wanting the best for their children, are thinking of opting out of the state-sector all together and going private but how can they afford the fees?

For many parents the benefits of a public school education are clear, and statistics certainly back up their thinking. Figures collected by the Conservative Party show that 10,156 pupils from independent schools gained three As at A-level last year, compared to 7,484 comprehensive school pupils. This trend is one that has developed steadily and the gap between exam results for fee-paying and state schools has increased substantially over time.

The percentage of independent school pupils achieving three A grades grew from 16.9 per cent in 1998 to 30.3 per cent in 2008, while at comprehensives the growth was far smaller, increasing from 4.7 per cent to 7.6 per cent. Public schools enjoy the lowest pupil to teacher ratio, with one teacher for every 9.6 pupils, according to the Independent Schools Council (ISC). And privately educated children are more likely to go to university with more than double the national average (92.9 per cent) of A-level students from ISC schools moving on to higher education.

While the benefits of a private education seem substantial, they do come at a heavy price and parents will have to fork out a great deal of money to cover all the associated costs. Private education fees have risen steeply and 2008 saw a 6.2 per cent rise resulting in parents having to cough up an average of £3,023 per term for a day school and £7,353 per term for a boarding school, according to the latest ISC census. Even with a fairly conservative estimate of a 6.2 per cent rise in fees each year, parents could face a bill of £185,200 to send one child to a public day school from age 11 to 18. On top of this, further education costs could more than double if the call from university vice-chancellors for an increase in student fees to £6,500 a year is answered by ministers.

With these spiralling costs, what can parents do to ensure that their children get the education they desire? The message seems clear – parents need to start saving as early as possible and if they want private education at primary school level some parents may need to begin saving well before they have started their families.

Parents should take into account several factors when preparing for the costs, including how many children they plan to educate privately, their attitude to investment risk as well as potential savings and earnings they may be able to accrue.

Inflation on school fees is another important calculations to plan for. "The investments chosen for school fee planning should be as flexible as possible. Flexibility is important since large withdrawals are needed over the years to meet the ongoing fees," says Danny Cox, from Independent Financial Advisers Hargreaves Lansdown.

Parents with time on their side can also afford to take bigger investment risks for better returns then switch to safer investments nearer to the time of paying the fees.

"For time scales of five years and over, I favour equity income unit trusts and if bought within an ISA, they are free from further tax. Equity income unit trusts tend to invest in the more well-established businesses, ones which have a good record of paying dividend income and are therefore less risky than investing in some of the smaller or fledgling companies," adds Mr Cox.

Kevin Tooze, the managing director of Equity Partners UK, argues that parents should consider other asset classes such as corporate bonds and property. He adds that parents should put their money on a stock market recovery: "Putting capital in now should bode well if history repeats itself and the market bounces back.

"If parents cannot invest a large sum they should look to dripfeed a regular amount of cash into a stockmarket unit trust. The upside of the recent falls is that your money will go further buying more units," he says.

If long-term investing is not an option, parents can use a pension loophole allowing people to take a quarter of their pension pot at 50 as a tax-free lump sum and continue to work. This could be an ideal way to give cash-strapped parents a way to pay off school fees or, perhaps more likely, university fees. This will however mean less money from the pension at retirement so parents should only take such a step after careful consideration.

Another option is to use an offset mortgage in which an individual's savings are used to reduce the mortgage balance and interest is charged only on the difference. The savings made in terms of interest can then be put towards school fees. In a less troubled property market, parents can also remortgage to release the equity in their homes. However, post credit-crunch lenders are far more twitchy about giving homeowners a further advance unless they have substantial equity in their property and, of course, enough income to meet higher mortgage repayments.

When looking at potential public schools, it's a good idea to check out their bursary and scholarship policies. Nearly a quarter of all pupils receive financial help from schools to the tune of more than £350m a year so there's a good chance that low income families can get reduced fees. Scholarships are awarded to pupils deemed to have flair in a range of educational fields from academia to sport and music. Bursaries, on the other hand, are means tested and require a household income to fall below a set level. Teachers with children attending the same school can expect big savings and under the Continuity of Education scheme parents in the Armed Forces and Foreign and Commonwealth Office are also entitled to allowances of up to 70 per cent of boarding-school fees.

Some independent schools will also offer an automatic reduction in fees, of around 10 per cent, for more than one child from the same family. This could be a deciding factor for parents planning to have more than one child educated privately. School fees can also be made more affordable by negotiating with the school about the method of payment. There have even been recent reports of schools offering credit to parents struggling to pay fees. Most independent schools require fees to be paid each term but some may be willing to set up an installment system to help those parents paying directly from their income. At the same time, lucky parents with access to a substantial lump sum may be able to pay several years of fees in advance in exchange for a discount.