Educate now, pay later?

Bursars at many schools are very busy seeing parents who want to extend payment, reduce it or get a bursary Michael Swan, Holmwood Termtime Collections

Now that equity release, the way many parents have released capital for school fees, is a lot harder if not impossible to secure and other means of finding credit are limited, parents without readily available liquid assets are looking for alternatives to stay in the private system. 

“We’re seeing more parents wanting to use our services and pay fees by monthly instalments to smooth the process,” says Michael Swan, managing director of Holmwood Termtime Collections (HTC), a company that allows parents to pay school fees by monthly direct debit, rather than in one lump sum at the start of each term.

HTC makes a payment in advance to the school and charges a service charge to the parents on the loan that they are providing. It costs more in the long term but avoids paying an eye-watering £3000-£5000 bill three times a year.

In 2008, the company advanced more than 40,000 loans to parents sending their children to fee-paying schools. It has seen an increase of nine per cent, year on year, in the number of parents choosing to pay school fees by direct debit – a much sharper increase than in recent years. Defaults are on the increase, also.

“You have to assume that some of the parents coming to us are having problems paying for a term’s school fees upfront and cannot find sufficient funds elsewhere,”
says Mr Swan.

The consequences of the economic recession are seriously affecting some families. “We try to chase parents in a diplomatic and sensitive way and find ways that we can accommodate a revised payment schedule, as long as the parent sticks to that,” says Mr Swan. “However, we are seeing parents who can’t pay, so unfortunately we are having to get our solicitors involved.

“More parents than in previous years are making payments by credit card, although the principal form of payment is still by direct debit.”

Bursar or bank manager?

Some UK schools are offering credit to help struggling families keep their children in the private sector. Schools have normally steered clear of this route, as it requires licensing from the Office of Fair Trading (OFT). Wellington College in Crowthorne, Berkshire, is registered by the OFT and is allowing parents to spread out the loan – even after the child has left. In return, parents may have to use their house as security against the debt.  

Feeling the pinch

Another key indicator is that independent financial advisers who specialise in offering advice on paying school fees are noticing a new kind of customer. “We are seeing very wealthy people who’ve never come to us in the past because they haven’t experienced any difficulties, but now the window has dropped,” says Doug Bonnar, joint managing director of the SFIA, a company offering school fees advice and planning across the UK.

“Parents are apprehensive about the economic climate and are being careful before committing to private school. Some are choosing not to send their children to boarding school and opting for the cheaper option of day schools,” says Mr Bonnar.

“They’re also looking for ways to pay the fees over a longer period, to spread the expense and the risk. By doing this they can very often make the payment of their fees very tax efficient.”

Bums on seats matter

A recent survey of the UK’s top independent schools by the Headmasters and Headmistresses Conference (HMC), indicated that applications were up year on year but Michael Swan offers an alternative view: “In the end, it’s not applications that count, it’s bums on seats.
 
“Bursars at many schools are very busy seeing parents who want to extend payment, reduce it or get a bursary. Parents will find some way to keep their kids in school until the end of the academic year. We believe this situation will manifest itself more from summer onwards.

Schools are being flexible

“Some bursars are being innovative and looking at ways in which they can ameliorate the situation,” observes Mr Swan. “Governors of schools, who are often traditional in outlook, may need to change tack and realize that in these harsh economic times, parents primarily want a good education for their child, excellent pastoral care and a positive, supportive environment for their child to thrive in. They don’t necessarily want the Olympic-sized swimming pools, the huge theatres and recording studios.

“Many schools do have strategies,” says Jonathan Cook, head of the Independent Schools Bursars Association (ISBA). “They are stress-testing – ‘what do we do if we lose five per cent [of pupils], what do we do if we lose 10 per cent? What would the effect be on our income and our cashflow?’ They’re really planning ahead into the future.

“Education is a lagging indicator,” adds Mr Cook. “During the last recession, independent schools were late in being hit by the downturn but it took them longer to recover from it. There’s an annularity to education and this does mean that September will be the true test for us in terms of the effects of the recession.