Making School Fees Affordable

A married couple with two children were looking at alternative ways to pay school fees. They were both employed as teachers with a combined income of £79,000. They had no savings, and they were paying school fees out of income.

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Their main asset was their home that had a value of £300,000, as well as mortgages amounting to £130,000, leaving £170,000 equity.

School fees were projected to cost £145,000 over the next ten years, with a peak of about £2,000 per month.

The objective was to pay school fees as efficiently as possible. To make the fees more affordable, they needed to be spread over a longer time period; an additional five years was recommended. The most efficient borrowing mechanism was to extend the mortgage.

A draw down facility would allow fees to be paid when required. An interest-only mortgage with an ISA investment to pay off the capital was selected as the best strategy.

A monthly investment of just under £500 was projected to pay off the mortgage over 15 years, but the time period and contribution could be altered at any time. Borrowings against the property would never exceed 55% of the property value.

A portfolio of UK Equities (expected to give good returns over the medium to long term) and Corporate Bonds (a low-risk product) were chosen. This matched the couple’s attitude to risk. The couple had adequate Life Insurance but were recommended to take out income protection. This flexible plan maximised the couples’ tax-free interest and made the school fees affordable, meaning that the continuity of private education under all circumstances was assured.