Lessons on Savings for School Fees
Around this time of year, thousands of parents across Australia learn just how much it’ll cost to give their children the privilege of another year of private school education.
Annual fees in many schools exceed $25,000 and don’t include things like uniforms, equipment, camps, excursions and other extracurricular activities. To make matters worse, school fees typically rise at around twice the rate of inflation.
Thankfully there are ways to take the pain out of school fees. Starting early with a structured savings and investment plan is of course ideal, but if you didn’t manage that and have fees to pay right now, keep reading because we provide some options below that you might not be aware of.
The earlier you start the better, seriously!
Planning a baby? This is the perfect time to start thinking about their education. If you’re hoping to send them to a private school (and possibly help out with university as well) now is the time to start saving. The earlier you start, the less you’ll need to put aside each month.
There’s another major advantage of starting early though.
With online savings accounts and term deposits paying 2% to 4% at best (before tax) and school fees rising an average of around 7% per annum, standard savings accounts will actually have you going backwards. If you start early though, with an investment time horizon of 10 or more years (to reduce the risk), shares offer a very different return with franked dividends well in excess of 4% with little or no tax plus the strong likelihood of capital gains. These returns could be accessed by direct investment in shares or Exchange Traded Funds or by investing though a managed fund (although these will of course incur fees).
EDUCATION SAVINGS PLANS
Specially designed education savings plans can be a good way to help parents meet saving targets, and offer tax concessions (which may be lost of the funds are not used for education purposes).
Two such are the not-for- profit Australian Scholarships Group and the Lifeplan Education Investment Fund, (managed by Australian Unity Investments).
Investment bonds are particularly attractive to parents in higher income-tax brackets because of the capping of the tax that is paid on the earnings in the investment bond at 30%. If the bonds are held for 10 years or more the money can be withdrawn without any further tax paid.
MORTGAGE OFFSET ACCOUNTS
For parents with a shorter time to save or who are uncomfortable with sharemarket risk, a mortgage offset account may be the next best thing. The money held in an offset account does not actually earn interest but the account balance is deducted from the mortgage balance for interest calculations. Effectively, that’s the same as earning interest at the rate paid on the mortgage – tax free.
Kids already at school?
If you didn’t manage to save enough and you’re scrambling to cover the fees, the Australian Scholarships Group offers a ‘School Plan’, a loan where parents who cannot afford to make up-front fee payments make regular, monthly or fortnightly payments to the plan and the plan pays the fees directly to the school.
Interest rates vary with fee levels, ranging from 3.95% to 5.95% – pretty competitive compared with alternative sources of credit such as credit cards and personal loans.
Need help to get started?
Give Treysta a call and we’ll establish a plan for you to set up education funding for your child or your grandchild. It will be the greatest gift you could give to them.