In 2016, Year 12 fees at a number of Sydney’s most prestigious schools topped $30,000 (not including extras).
According to the ABS, secondary education costs have increased by 6% over the last 12 months. The typical increase over the years is generally around 5%-7%pa. If fees continue to increase at 6%pa, a $30,000 fee for year 12 today would be $76,211 in 17 years for a baby born this year. Even at Year 12 fees of $15,000 today, you’ll be up for for around $38k in 17 years.
If you’ve made the decision to send your children to a private school it is well worth your time starting to think about how you will fund the cost.
Two ways to think about it are:
- Fund from your cash-flow as required. While it may seem easier to worry about it later, if you have two, three or more kids in high school at the same time – that is some serious post tax dollars!
- Plan ahead and save some or all of the expected future costs.
I believe it’s better to plan ahead so if you are going to put some money aside to ease the future burden, what options should you consider?
- Save in the lower income earners name – lower tax rate than investing in high income earners name or joint name but easy access can mean the education savings are raided from time to time.
- Save using a Discretionary Trust – lower tax rate than investing in high income earners name or joint names and more flexibility on income distribution but again easy access can mean the education savings are raided from time to time.
- Save via Additional Payments on Your Mortgage – this can reduce your interest costs and help you pay your home off sooner but mixing your your savings with your liabilities can make it more difficult to keep track of what you’ve put aside for education.
- Invest in an Education Bond – tax rate on earnings is capped at 30% which you receive back as a tax benefit where used to fund education but you won’t receive the tax benefit when withdrawals are not used for education. It’s the most tax effective method and is also attractive due to its specific purpose for education.
The best option to suit you will of course depend on your individual circumstances. Education bonds are popular with both parents and grandparents who are planning ahead to give children the best education possible.
And with university fees a hot political topic, if you are still thinking about funding the tertiary fees for your kids or grandkids – you really need to start planning!
“If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people” Chinese proverb
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