Planning ahead can take the sting out of costs

Cost isn’t the only factor to consider when choosing a school, but it pays to plan well ahead to ease the financial burden

Research tells us that putting your child through primary and high school can cost anywhere between $47,000 (government school in regional and remote Australia) and $420,000 (private school in a major city). It’s often regarded as the second largest financial decision you’re likely to make outside buying the family home, especially if you have multiple kids.

However, the same research also tells us cost isn’t the highest priority when people select a school. From a 2020 survey of more than 1800 members, education bond provider Futurity Investment Group says parents and carers prefer to consider a school’s performance, reputation and location over cost.

Vince Scully, financial adviser and founder at Life Sherpa, says whether a school is financially workable in the long term isn’t the most important consideration for parents. He says we will often make large sacrifices in budgets to provide a great education for our children.

If you’re considering sending your child to one of the top 100 schools in the country from kindergarten onwards, Scully says you’ll have to start saving about $1500 every month from your child’s birth up to the time they finish Year 12.

This is at the upper end of school fees, though. If there’s a desire to send your child to a private school and you know you won’t be able to afford it from day one of school age, there are work-arounds. For example, you can build your savings and investments while the child is at a government school from kindergarten to Year 6, and then consider moving across to a private school from Year 7.

When it comes to assessing government school costs, Scully says they’ll vary from suburb to suburb. A smart move is to see whether you can afford to buy or rent a home in or near the area of the school where you’d like your children to go. This gives one indication of what people are spending day to day and whether school fees will be achievable alongside your lifestyle. Invest for the future

There are several ways to manage your money when saving or investing to pay school fees. Common solutions include using your mortgage offset; an investment or education bond; a shares portfolio; a term deposit; and school budgeting and payment platforms.

Scully says often he’ll have clients who use a combination of these because it’s not a great strategy to have all eggs in one basket.

“You’re effectively making a decision on where your money is spent for the next 10 years or more. Therefore, you can’t really afford to take a lot of risk with the money,” says Scully. “Your kid isn’t going to wait another year to enter Year 7 because the sharemarket had a bad year. Think about what you’re invested in to meet those requirements. Usually it’s a mixture of the offset account in the mortgage and some more market-based investments.”

He says while investment bonds are sold for their tax benefits, it’s important your financial adviser explains to you the difference between

investing in and outside these products. There can be cases where the maths will tell you that it’s more expensive to use an investment bond but practically it’s a better option.

An investment bond can have psychological benefits on top of cost considerations, Scully explains. For example, you don’t have to declare income from the bond in your tax return and it doesn’t affect your Family Tax Benefit; and because you can increase your investment by 25% every year, there’s encouragement to keep going. For the self-employed, it can also create a pool of money that’s protected from creditors and separate from your personal assets.

These benefits can often outweigh the tax implications, says Scully.

Payment plans and tools

Aside from putting your money to work and investing to cover future school fees, there are budgeting tools and payment plan platforms to help navigate costs in the shorter term.

One such platform is Edstart. Chief executive Jack Stevens says the most common question from parents is whether they’re locked into the payment plan once they sign up. They’re only charged for what they use and they can also pay out early without fees or charges.

“We also often receive requests from families requiring a more tailored solution due to their family situation, like couples that are separating or when grandparents are helping out with school fees.”

He says there are schools that provide discounts for paying on time each term and the discount can be more than the cost of using the platform, so there’s an opportunity to save money too.

Scully says that when the topic of school fees arises, it’s important to think about where you can save. For example, uniforms, school bags and some textbooks often can be purchased second-hand from the school.

While you also need to factor in expenses such as school excursions, stationery, laptops, and tutoring from home, Scully says he tells clients to keep a 15% to 20% buffer for unexpected costs such as co-curricular and extra-curricular activities, which include social clubs.

He says there are families who will spend a lot on tutoring outside school from an early age. From kindergarten, children might do after-school or holiday tutoring, mostly in secondary languages or maths. And this is particularly the case if you’re keen on your child going to a selective school, says Scully. You need to be dedicated and prepared to spend. The Futurity Parents Report Card 2020 says tutoring outside school is estimated to cost between $1000 to $2000 a year.

Pandemic hits incomes

Scully says the Covid-19 pandemic is generally hitting families financially with their second income source in the retail or hospitality industries. This second income is usually the one that pays the school fees, he says.

In his experience, schools have been accommodative and flexible for people who have fallen into arrears with fees. He also expects that some people have resorted to credit cards or payment platforms if they’ve hit financial hardship. One thing to keep in mind is that if your school hasn’t been delivering its full service during the pandemic, you may want to re-negotiate your fees.

Edstart’s Stevens says many schools have financial hardship packages and bursary funds to support families in need. The platform also helps schools perform financial assessments to assist them with understanding each family’s individual circumstances.

David Robertson, executive director at Independent Schools Queensland, says during the height of the Covid-19 restrictions, which coincided with term two, schools were contacting their respective communities to offer financial support and to gauge the level of hardship.

“These are difficult conversations to have at any time, but in most instances independent schools could provide solutions that enabled families to maintain their child’s enrolment,” he says.

He says schools took a range of approaches, based on their local contexts. Options included tailored support such as payment plans, fee deferrals or waivers or in some instances school-wide term two fee discounts.

Before the economic impact of the pandemic, many of the state’s independent schools, particularly boarding schools, had already been providing record levels of support to families impacted by the North Queensland floods and drought. This has taken the form of tuition and boarding fee remissions and counselling support, says Robertson.

“Many independent schools have existing scholarship and bursary programs which they could also draw on to support their families. In some instances, grandparents have also stepped in to meet school fees for their grandchildren,” he says.

“What was also heartening to hear were the stories of parents asking their independent school not to apply a discount to their child’s fees, but to instead put that money towards the fees of a child whose family was facing financial hardship.”