How to cope with school fees when storm clouds are gathering

You’ve got your kids in the school you want. They’re happy and doing well, but disaster strikes. How do you continue paying the fees in the face of a financial calamity? Help is available, says Susan Wright

school fees

If the pupil is in the midst of the four-year exam period, we’ll look carefully to ensure the his academic journey is not interrupted
Andrew Hunter, headmaster at Merchiston Castle School, Edinburgh

It’s a big decision to put your child through private education. According to the Independent Schools Council (ISC), the average term fee at a day school for 2007/8 was £3023, and for boarding it was £7353. These considerable sums will rise year on year (last year by an average of 6.2 per cent according to the ISC) making it a big financial commitment for parents, especially for the majority who are paying the fees from their incomes.

“The key thing is that it’s driven by both parent’s income,” says Angus Cater, managing director, at SFS Group, which offers a range of insurance products dedicated to the private school market. “If you lose one of those incomes then the whole thing comes crashing down.”

Don't stick your head in the sand

An income might be lost for a number of reasons: critical illness, death, redundancy, marriage break up, bankruptcy. Morbid as it may be, illness and death are the easiest to prepare for. If you’re committed to keeping your child in private education, it’s best not to stick your head in the sand regarding worst case scenarios. Instead, take out insurance.

Box out There are a number of policies and protection plans designed to help in such situations. The most obvious is life insurance, which pays out a lump sum or a guaranteed salary for an agreed length of time.

Permanent health insurance (PHI) is designed to kick in when you fall ill and pay you a proportion of your income. Critical illness cover pays out a lump sum should you fall ill with an illness defined in the policy.

Some schools offer dedicated insurance plans to cover a child’s school fees should something happen to a parent, but bear in mind these may not offer the best deal.

Leave a lump sum to your partner

“You have to watch that you’re getting a good rate of cover if a policy is just paying out school fees,” says Kevin Tooze, managing director at Equity Partners, an independent financial advisor (IFA). “It might be better leaving a lump sum to a spouse who can then make decisions on what to do with it. It gives them more control.” It’s an issue that couples should discuss because more control also means more decisions.

smoking SFS Group offers a Life Insurance Scheme to cover a child’s school fees up to the age of 18, with the option to go all the way through university.

A monthly premium of £30 will cover fees of £5000 per term and the policy includes an annual benefit increase of five per cent that will help to match the inevitable rises in school fees. This type of policy enables you to ring fence your child’s school fees so that, no matter what, they will continue receiving the sort of education you have chosen for them.

“Our insurance means that the school fees are paid without disruption. The money doesn’t attract taxation and, in the event of death, it avoids probation,” says Angus Cater, who also points out that the money can be tied up in an estate and inaccessible for a while after death.

Generally, the cost of policies will vary according to age, gender and smoking habits. As with any financial product, the internet has made it easier to search around for the best deal. Moneysupermarket.com enables you to compare life insurance and income protection plans. It’s advisable to enlist the services of a good independent financial advisor to help you find the best product to suit your needs.

Speak to the school

If you don’t have insurance and something happens to disrupt your fee paying, then you have to look elsewhere for help. Your first port of call should be your child’s school. For one thing, your problems will escalate rapidly if your start defaulting on payments. For another, all schools are used to dealing with such problems.

“The first thing we always do is encourage open communication with the school,” says Andrew Hunter, headmaster at Merchiston Castle School, a boy’s day and boarding school in Edinburgh. “We look at the age of the boy and stage of his career. If they happen to be in the midst of the four-year exam period, we’ll look carefully to ensure the boy’s academic journey is not interrupted.”

Merchiston, like many other schools, can help parents in financial crisis by putting them in touch with a charitable trust. They can also award bursaries or employ other approaches that address the particular circumstances. In the past, Merchiston has taken a share in parent’s property in return for paying the fees. In one special case, they agreed a parent could pay their child’s fees after their child had left the school.

The SFS Group helps to fund the School Fees Charitable Trust (SFCT), one of the trusts to which Hunter might refer a parent, by diverting 3.75 per cent of all its premium income into the Trust. Parents are usually referred to the Trust by their child’s school or through the Educational Trust’s Forum, but they can also approach the Trust directly via phone or the Trust’s website.

“Anybody can make an application to the Trust,” says Cater. “We try to pay 25 per cent of the outstanding fees, with the school and other charities helping too.”

Marriage break-up

The most common cause of applications to the SFCT is the marriage break up, which sees the parent who is paying the fees no longer prepared to do so. Cater lists the death of a parent, business failure and illness – such as cancer, strokes and heart attacks – as other top reasons. Unfortunately, you can’t insure against a marriage break up (it could be taken as an incentive for breaking up) and getting adequate redundancy cover is difficult because it’s seen as risky by the insurance industry.

finances Aside from charitable help, parents needing financial help could opt for a loan, try to unlock money from their pension or re-mortgage their house. These are riskier propositions but can work, especially if the child doesn’t have long until he or she finishes school. Sainsbury’s Finance estimates that around 18,000 UK loans worth an estimated £165 million were taken out in 2007 to help pay school fees.

Be sure to take an honest look at your financial situation. If you really can’t afford the school fees then you may have to call it quits. Organisations like the Charitable Trust are unwilling to offer funds to people who are in the middle of digging themselves into a deep financial hole.

“The Trust typically doesn’t pay out where there’s an endemic problem, where the finances are a mess and the family really can’t afford to be paying school fees,” says Cater. But for many traumatic and unforeseen circumstances, there’s help out there. Just make sure to ask.

Case study

"The charities came to our assistance when everything seemed so futile"

Degenerative vertebrae in her neck meant Helen had to give up a full-time nursing career after 27 years. This left her unable to afford the fees for her son, Mark, who had been in the same private school since he was 15. Extremely dyslexic, Mark’s learning difficulties had not been acknowledged until too late at the state school he had attended previously. He had also suffered bullying.

Helen initially re-mortgaged her house until she couldn’t borrow any more. When she approached the SFS Charitable Trust, Mark was receiving a bursary from the school but needed six term payments of £450 to finish his education. Conscientious, hard working and thriving in his new school, Mark had tried to raise the money himself to pay for his fees. In the end, the Trust awarded him the funds he needed.

“Needless to say we were ecstatic when the final piece of the jigsaw fell into place,” says Helen. “The charities came to our assistance at a time when everything seemed so utterly futile. They changed the direction of Mark’s life and gave me the strength to keep going.”

*This is a genuine case dealt with by the SFS Charitable Trust. Names have been changed.