We all know that the Government inflation figures often bear little relation to our own living costs, and if you have your heart set on educating your children privately, it may come as a shock to learn that private school fees are accelerating at nearly twice the official rate of inflation. According to 2006 figures from the Halifax, private school fees have risen by 43% since 2000. Putting your child through a pre-prep in the Home Counties from the age of three, then a prep school, and finally a boarding school, would cost £326,000, says Paul Farrow in The Sunday Telegraph assuming fees rise by 6% and extras, such as a uniform and school trips, cost another 8%. And even if you only put your child into the private sector for secondary schooling, if she boards you'll still pay £211,000.
That is a huge amount of money, so it pays to start doing your sums as early as possible. If you've left it to the last minute, your only option is going to be cutting your current expenditure as much as possible and borrowing the rest. You can get personal loans at around 6% if you have a perfect credit rating, but most people will probably be better off remortgaging. Many lenders now allow you to make a drawdown arrangement so you don't pay interest on the whole lump sum all at once.
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But starting to save early is always the better option. Chris Proctor from private school fees specialist SFIA recommends doing so via equity funds kept in an individual savings account (Isas), given that over the long term this is consistently shown to be the best way to make good returns. If you end up with a nice lump sum, you may find that you can pay several years of private school fees in advance and get a discount usually of between 3% and 6% on future fees as a result.
Such arrangements are known as composition plans and some schools will even fix the level of your fees if you put down enough in advance. The discount may not sound like much, but as Paul Farrow points out, a discount of 5% is preferable to trying to generate a return of 5%, because there is no risk and the discount is net of tax. In any case, if you pay a lump sum up to five years ahead the discount may be much more substantial (up to 35%), says David Budworth in The Sunday Times. Finally, there are research bursaries and scholarships and remember that schools often give substantial discounts (as much as 10%-20%) for additional children. For specialist help and advice, contact SFIA on 0845-4583690.
The Office for National Statistics launched an online inflation calculator earlier this week (Statistics.gov.uk), which enables you to input your personal expenditure patterns to calculate an approximate personal rate of inflation. See also: What's your personal inflation rate?
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