details.
Step by step guide to financing school education
What you'll learn in this step: Compare the costs of education in the
private and public school systems and discover the hidden extras to be found
in both.
Whether you are opting for a public or a private school, education doesn't
come cheap. And the older the child, the more you'll be dipping your hand into
your pocket. If it's not fees, it's uniforms, stationery, sporting equipment,
musical instruments, excursions and maybe the odd private coaching thrown in.
The costs can range from a few thousand if you opt for the local state school
up to $30,000 a year for each child at a top independent boarding school. And
then there's university...
Learn more: Parents feel the pinch as school
costs soar, The Sunday Age, 27 Jan 2002
Soaring education costs are forcing parents to juggle their budgets to find
the money their children need to begin the new school year.
Costs of private education
Private school fees range from state to state and from school to school. Catholic
schools and the smaller Christian schools that have sprung up over the past
20 years generally charge much lower fees than major independent schools. Sydney
Grammar, for instance, charges just shy of $15,000 a year. If you've got a couple
of boys, you're looking at $30,000 ($60,000 before tax!) and that doesn't even
take into account the cost of uniforms, books and more. Compare that with William
Carey Christian School in Sydney's south-western suburbs where fees are $3,700
a year or Stella Maris College on the northern beaches at $2,210 a year. Or
for that matter independent school The Hutchins School in Hobart has much lower
fees than its Melbourne and Sydney counterparts at $7,650 a year.
Learn more: The price of going private,
The Age, 13 Feb 2002
Thirty per cent of Australian children now attend non-government schools.
Beware the hidden extras
Even before your child starts the school, you have to pay enrolment fees. Then
there's the building fund, library fund, foundation fund... most schools seek
contributions to one or several of these funds via the school fee statement.
This can add $100 or so a term. With some schools it's obligatory, with others
it's optional. The parents' association also usually commands an annual fee
of $20 or $30. Then there are the fund raisers – fetes, balls, dinner dances
and so on. As a word of warning, the flashier the school, the flashier the bids
at the auctions at many of these events.
Once you've got over the shock of the fees, there's another shock waiting.
Uniforms, books, stationery, sports gear, excursions, music lessons... the list
goes on. And if your child is an achiever and wins pockets, you'll have to pay
for the embroidery too! Kitting a child out in winter and summer and sports
uniform can set you back a fair few hundred dollars. A blazer alone is usually
about $150, then there's the boater, the tunics, the trousers, the tracksuit,
the ties, the badges and more.
Learn more: Back-to-school costs are crippling
some families, The Age, 10 Feb 2001
Prepare for a strategy to save for your child's education.
What you'll learn in this step: Making the choice between private and
public education can be a matter of principle as well as finances.
Private versus public
The choice between private and public school can be as much a matter of principle
as affordability. Some people swear by private, schools citing higher levels
of disciplines, a well-rounded education and the ability to network after school
is long gone. Others value the equality that a state school can bring and point
to the benefits of solid academic results from local neighbourhood schools.
You'll end up paying fees at all schools, but a few hundred a year at a state
school is far easier to find than quite a few thousand.
Learn more: Public versus private school
– where should I send my child?, The Sunday Age, 4 Feb 2001
What school to pick is a matter of how you perceive the local government school
and the talents or aspirations of your child has?
Learn more: Primary values, open doors,
Sydney Morning Herald, 20 March 2001
There are education options from the first school day.
What you'll learn in this step: The sooner you start to put money away
for your child's education, the better. There are numerous investment options
available to get you started.
The sooner you start financial preparations for your children's education,
the better. Once again, the beauty of compounding comes into play. If you put
away $100 a month from birth, you put yourself in a strong position to meet
the school fees when they fall due once the child enters high school. Assuming
you have 10 years to invest, there are a number of long-term investment products
that may be suitable. Remember there's no point just saving the money, you also
need to put it to work, ideally in a growth investment.
Some investment vehicles are:
- Australian Scholarships Group
- Insurance bonds
- Endowment warrants
- Managed funds
Learn more: Paying fees is education in itself,
Australian Financial Review, 23 Sept 2000
Figuring out that it's going to cost $200,000 to educate a child is the easiest
part of any parent's educational financial planning strategy. The difficult
part is coming up with the money.
Learn more: From little things big things
grow, The Age, 20 May 2002
Getting your child through school could be as easy as making sure you own
your house.
Learn more: School of hard bucks, Sydney
Morning Herald, 31 Jan 2001
Sending the little darlings off to school is a hefty investment and you'll
need savings plans that deliver intellectual growth.
ASG
The Australian Scholarships Group is a friendly society founded in 1974 to
help fund education. Children must be enrolled in the ASG plan before their
seventh birthday to qualify for secondary school program, and before they turn
10 for the tertiary program. Parents contribute upwards of $10 a week to the
secondary program. Investments are made in conservative growth balanced funds.
At present the fund is tax exempt but come July 2002, tax will be levied at
the company rate of 30 per cent.
Learn more: I can do that: save for your
child's education, Sydney Morning Herald, 9 Feb 2000
Like most forms of saving, the earlier you start the better – particularly
if you're hoping to send your child to a private school and university.
In whose name?
Don't invest for your children's education in their name. This is because once
children earn $416 they pay 66 per cent tax rate. (The high rate is intended
to discourage hiding assets in the names of children.) The availability of a
$150 low-income earner rebate effectively pushes up the threshold, but it doesn't
take much to earn that sort of money on investments. In fact $7,000 would probably
yield this sort of income. It's better to invest the money in the name of the
family member on the lowest tax rate. However, if you are aiming for tertiary
education, a product like an insurance bond may be put in the child's name because
the income will not be received until he or she is 18 years old.
Insurance bonds
Insurance bonds have long been viewed as good investment vehicles to accumulate
funds to pay for education because they offer tax advantages – at least
until July 1, 2002. The bonds, which are basically a type of managed fund issued
by a life insurance company, are tax exempt by the investor if they are held
for the full 10 years until maturity. This is because the life company pays
the tax internally and any earnings are reinvested. Changes to the tax treatment
of these bonds, which might see their tax- exempt status abolished, have been
postponed until the second half of 2002. Any bonds taken out before this will
still enjoy the tax-exempt status. Minimum investments usually start at $1,000
and you can make further contributions in subsequent years as long as they don't
exceed 125 per cent of than the previous year's contribution.
Endowment warrants
Endowment warrants are a "set and forget" investment with a 10-year life span.
This makes them a good candidate for investing to pay high school or tertiary
fees. Basically, you buy a single blue chip stock or a basket of blue chip companies
in two instalments – the first on purchase and the final in 10 years. What
you are doing is buying shares 10 years down the track at today's prices. In
the meantime the blue chip company should have been paying dividends which are
reinvested. With the passage of time, it is expected that the combination of
the dividend payments and the capital growth in the shares will reduce the amount
to pay in the final instalment, if not wipe it out altogether.
Learn about the types of shares available, how to find a broker and how to
trade online with our shares
information guide.
Managed funds
If you have less than 10 years up your sleeve – maybe around five years
– take a look at investing in a managed fund. With a managed fund, you
can have a balanced portfolio with some exposure to growth assets.
Learn about managed
funds and how they differ from shares.
Short time horizon
If your time horizon is only a couple of years, you cannot afford to take too
much risk. After all, you need the money to be there in two years' time to pay
the fees. In such instances, a cash management trust might be the better option.
Borrowing
One option is to borrow. Schools often offer discounts or protection from further
rises for prompt payment of fees. Taking out a personal loan, or using the mortgage
to draw on equity in your home, will allow you to take advantage of discounts
and has the bonus of spreading expenses across the school year. But financial
advisers are wary of this route.
Anyone thinking about going into debt should weigh the cost of interest payments
and loan fees against the potential discount before going ahead.
If you haven't got the funds to pay the fees – even in easy monthly instalments
– reconsider whether your child should be at the school.
If, however, your financial problem has been caused by a crisis, it's a good
idea to talk with the bursar, who might arrange some payment options for you
– or maybe even offer a scholarship.
Compare
loan rates and features to make an informed choice before applying online.
Salary sacrificing
A more sensible way of using debt is for parents to take advantage of any interest-free
loans offered by their employer. This has all the advantages of normal borrowing
without the downside of interest charges or set-up costs. Repayments can be
spread throughout the year and are deducted from the employee's pay.
Because fringe benefits tax (FBT) is payable by the employer if the loan is
extended for longer than six months, the employer will try to encourage repayment
within that time frame. But any FBT payable is not generally passed to the employee
if the loan is paid off over a year.
Outright payment of school fees by employers is also a possibility but, because
it means an FBT liability for employers, it tends to be restricted to a favoured
few. Senior executives can sometimes negotiate the payment of school fees up
to a certain amount – say $10,000 – as part of their package, and
in this case the employer normally covers the FBT liability. The cost of FBT
may, however, be passed to the employee.
Workers in the voluntary sector may benefit from a tax concession that makes
it tax-effective for employers to package some private expenses. Public benevolence
institutions are exempt from FBT, while other not-for-profit organisations such
as unions receive a rebate of 48 per cent on any FBT payable, effectively making
it tax-free. But short of setting aside a bonus payment to help fund a child's
education, there is little that many parents can do to package their salaries
more effectively.
What you'll learn in this step: Paying school fees is now easier, with
many schools providing alternative payment methods, such as payment in instalments.
Easy payments
A number of schools will give you the option of paying in instalments. Usually
you will find there is an administrative cost involved but if you need this
facility, it's probably well worth paying. William Carey Christian School in
New South Wales, for example, offers you a number of options including monthly,
annually or at the start of each term.
Australian Scholarships Group has also introduced a School Plan where it will
pay the fees directly to the school while directly debiting 12 equal monthly
payments from your nominated account. It charges an administration fee of 4-5
per cent.
Paying by card
If your school allows you to pay by credit card, you can take advantage of
loyalty points. Let's face it three children at private school each year will
soon rack up the points. Plus you get the benefit of extending the time you
have until you make the payment.
What you'll learn in this step:Paying on time is one way to reduce school
fees. Buying textbooks second-hand can also save you money.
Scholarships
One way to reduce school fees is to have your child win a scholarship. Most
schools have a variety of scholarships – music, art, language, academic,
offspring of old girl or boy, country student and so on. Entry points can start
from Year 5 but generally are Year 7 for the full six years, or Year 11 for
the final two years. Competition is strong. Some schools offer a great number
of scholarships such as Sydney Grammar and Scots College in Sydney, while other
just have a handful. Students sit for either an ACER (Australian Council for
Educational Research) examination, which is a common scholarship examination
for a number of schools or for an exam individually set by a school. With ACER
you can apply for a number of different schools and just sit the one exam. Successful
candidates are then normally called in for interview before being selected.
How to save on fees
There are a number of ways you can reduce fees, although they will vary by
school. Some let you pay the full six-years of high school fees in one hit.
In many cases you will be offered a discount of up to 10 per cent. And you will
also enjoy the benefit of only paying today's going rate, thus escaping any
rises in costs. Given fees last year rose some 8 per cent, this might look an
attractive option but you should consider the opportunity cost of investing
that money in a growth asset.
You sometimes also get a rebate for just paying the full year in advance.
Paying fees on time is another way to reduce fees. Some schools allow you a
rebate of say $50 if you pay by a certain date. And siblings at the school will
also generally see some reduction in fees for the second and subsequent child.
Ways to save
Most schools have a uniform shop that sells goods with only a small profit
margin, and many also often operate a second-hand bookstore. Good savings can
be made here, and you can also benefit by selling your own outgrown uniforms
and last year's textbooks.
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Each week financial advisor Noel Whittaker answers your
questions.
