School fees keep rising and so does parents' blood pressure. Hilaire Gomer offers advice on ways to pay.

A father who had already fielded one child through Eton recently sent his second son to Stowe. Within weeks of the boy going there, a restoration appeal came asking for help restoring the magnificent Palladian building. “A great many of us parents just chucked the appeal in the bin. I mean frankly, what do they want - blood?”

School fees have outstripped the rate of inflation by three times since 2000, seeing a 40 per cent rise since then. The gap between day and boarding has narrowed too. Why have school fees gone up so much? According to Jonathan Cook, general secretary of the Independent Schools Council Bursary Association, it is a simple matter of costs rising.

“Don't forget private schools are charities; no-one is making a profit here. We only raise fees because we have to. Two-thirds of our costs is the staff and maintaining their final-salary scheme pension. We have to remain competitive with the maintained sector where there have been big pay increases recently.”

If there was ever a mantra for school fees it should be Baden-Powell's “Be Prepared.” Parents have to be pro-active and make arrangements as soon as a child is born.

What is the best approach? Justin Modray of Bestinvest says, “There are a number of ways to save, but regardless of which option you choose, the key is simply to save. Specialist school plans are worth considering, but conventional plans usually offer more flexibility and could prove more cost effective.”

Gabbitas Thring charge £125 for the first 20 minutes of advice on the phone. A local independent adviser could be helpful, too. Dane Halling of Arcturus Investments charges £300-£500. Ben Yearsley, investment manager at Hargreaves Lansdown of Bristol is totally of the “be prepared” school of thought. He says flatly, “You must start and keep saving £500 a month for 10 or 12 years. Depending on when he or she starts secondary school, you should then be able to afford five years of boarding school education.” This assumes an eight per cent annual growth of said funds which should produce a pot of £60,000, which would buy four years schooling at £20,000 a year. If you keep saving once the child has started at the school you should have enough for a fifth year and more. However, you have to allow for inflation on all this of 3-4 per cent.

Invest in funds (unit trusts, investment trusts, open-ended investment companies) as the most cost-effective destination for £500 a month. Says Ben Yearsley:“The best investment in the long term, 10 years or more in equities, beats all the rest. However, direct investment into individual equities just isn't
financially sensible with this size of saving. The important thing is to find a good fund manager to ensure that the funds deliver.” Not everyone would agree with Yearsley's dismissal of direct investment into shares, and advisers only pick up an annual management fee from units trusts and OEICs.

Being tax efficient does make sense. Hopefully, you might get help from grandparents, relatives and childless godparents. If the money comes from them to a grandchild, for example, the child's income tax and capital gains allowance can be used. Grandparents can consider equity release on their property to help, and give cash away under inheritance tax's Seven Year Rule whereby gifts avoid tax if the donor lives for seven years more. Making full use of Individual Savings Accounts (ISAs) by parents and grandparents helps tax efficiency. The lump sum pay-out that a SIPP (self invested personal pension) offers can also be used for school fees.

What if your child is three years away from Common Entrance and you have nothing saved? The Yearsley prognosis: “The only thing you can do is seek the very best interest rates and hold your savings in cash. Put it into an ISA by all means but it won't make much difference. There is no point investing in funds or
equities for such a short time. The parents will be financing the fees out of cash flow if at all.”

Parents make huge sacrifices to send their offspring to private school. The number of children educated thus rises each year - currently between six and seven per cent of schoolchildren go private.

When Patrick Musgrove's third child got into Rugby unexpectedly he found another way. He went, cap in hand, to his bank manager. “I was given the green light to build up a sizeable debt while my son completed his education. Depressing to have it round my neck for years, but I couldn't see any other way of creating that opportunity,” he says.

www.sfs-group.co.uk
www.clarkeandpartners.co.uk
www.gabbitas.co.uk
www.isc.co.uk
www.sfia.co.uk
(School Fees Independent Advice)
www.arcturus-investments.co.uk
www.bestinvest.co.uk