Cost of Education: Saving for School and University Fees

Having children can be an expensive business, not least when it comes to considering the costs of school and university fees. Ian Morgan, National Sales Manager at Wesleyan Medical Sickness considers some of the options.

Most parents would agree that a good education is key to giving children the best start in life. However good education comes at a cost, especially now that increasing numbers of parents are choosing to educate their children in private schools. In addition, many children are continuing their education into their late teens and early twenties, which means the financial cost to parents can continue for many years.

If you plan to send your children to a fee paying school, the sooner you start putting money aside the better. Average fees for day pupils can range from £2,648 per term in the North of England to £3,529 in London, according to the Independent Schools Council Census. Boarding fees meanwhile start at £6,432 per term in East Anglia rising to £7,514 in the West Midlands.

Going to university doesn’t come cheap either. The National Union of Students estimates that it costs more than £12,000 a year to attend a university outside London and over £14,000 in the capital. Student loans won’t cover the full cost of fees.

So, the cost of education clearly creates financial demands on a family. As this is a long- term venture it makes sense to ensure you have the money available to cover every aspect of your child’s education from primary school through to university. Advance planning is essential as the last thing you want is to disrupt your child’s schooling because of financial problems.

Planning Ahead
Before you decide how you want to plan payment of school fees there are a number of factors that you should take into consideration.

Financial Assistance
It’s worth exploring whether there are any bursaries, grants or scholarships available to assist you in funding your child’s education. You should be able to get more details from the school or Local Education Authority.

Existing Investments
If you already have a portfolio of assets and investments, you should review these and consider if they will cover all the costs. You may want to make additional contributions to increase their worth or even seek new investment opportunities. You should ask your Financial Consultant for advice.

If you commit to new investments you should consider their maturity date to ensure that they release funding to coincide with the times when you need to pay the school fees.

Attitude to risk
This will be a key factor in helping you to decide what type of financial planning to undertake. If you are a cautious investor you might want to choose funds with a safer, lower return. More speculative investors might consider higher-risk options.

Payment Protection
You should think about how you’ll continue to pay fees if your personal circumstances change, for example if you are sick, made redundant or die. You might want to ensure your payments are suitably protected to cover you in the event of unforeseen circumstances.

Possible Options
So once you’ve considered your current position, you need to think about the options available to you. Some parents will find it a strain to pay education fees continuously from regular, taxed income and prefer to spread a portion of the costs over a longer period.

One way of doing this is to invest a lump sum of money. If you have capital available, a wise investment could ensure that future fees can be covered from the returns. You should speak with a financial adviser to find a tax efficient and flexible approach that suits your needs.

There are also a number of regular savings options that you can consider. A tax efficient option is to use your ISA allowance. Every adult can save up to £7,000 a year (£7,200 from April 2008) in an ISA where your savings can grow tax effectively. Investments can either be made in lump sums or as regular savings starting at around £20 per month.
Up to £3,000 (£3,600 from April 2008) of your ISA allowance can be invested in a Cash ISA – a bank or building society savings account that pays tax free interest. Cash ISAs are an ideal home for money that you will require in five years or less. The remaining part of the allowance could go into a stocks and shares ISA, which are designed for medium to long term saving. Alternatively you can invest the whole of the allowance into a stocks and shares ISA. There are various types available depending on your attitude to risk. For more cautious investors there are with profits ISAs which invest in a mixture of shares, fixed interest securities and property. Regular bonuses are added in order to smooth out investment returns. The other popular alternative is unit trust ISAs. A choice of funds is available which invest in the UK or overseas shares, fixed interests or property. Your investment in these funds will fluctuate in value in line with the underlying investments.

For longer term savings, direct investment in unit trusts is another option. This can also be a tax efficient option because investors can use their annual capital gains allowance of up to £9,200 (for 2007/08) to make tax free withdrawals.

Another form of long term savings worth considering is unit linked regular savings plans that can be put into discretionary trusts for children. Managed funds can be used which spread the investment risk across shares, fixed interests and property.

Different investment options are available according to your timescale and attitude to risk.

Conclusion
Clearly, there are many ways in which money can be put aside to help pay the costs of your children’s schooling and university education. Every family will have different requirements so it makes sense to take professional advice from a financial consultant who has a good understanding of the subject and of your own needs. The sooner you start saving the better prepared you will be to cover the costs of your children’s education. 

The above information does not constitute financial advice. If you would like more information or need general financial advice please contact your local Financial Consultant.