What to consider when planning to pay for your child’s education

We all want what’s best for our children, which may include ensuring they receive a high-quality education even if it means making sacrifices. For many people, investing in their child’s education is a crucial step on their financial planning journey.

The number of children attending private schools is on the rise, with the Independent Schools Council (ISC) calculating the number of pupils in private school education in January 2023 was 554,243. This is the highest level since when records began in 1974, with nearly three in 10 new pupils joining ISC schools from state-funded schools.

However, rising university tuition fees and private school fees, alongside the increasing costs of other expenditures, have made it more and more difficult to set aside enough money to pay for a child’s education.

The Institute for Fiscal Studies found there has been a 20 percent real-term increase in average private school fees since 2010 and a 55 percent rise since 2003, with the average private school fees across the UK at £15,200 for the 2022/23 academic year. The fees for boarding schools are far higher at around £40,000 per annum.

While university tuition fees were frozen at £9,250 for English students in 2023, the rising cost of living has squeezed the budgets of students, with a greater proportion of their money needing to be set aside for essentials such as accommodation.

Be sure to plan ahead

If you’re intending to send your child to a private school or to university, preparing and planning thoroughly by accounting for expected inflation and additional expenses is crucial.

For private schools, researching the institution is key. Understanding the fees it charges and what to expect in terms of additional costs such as uniforms will help you plan how much to set aside. Some institutions may also have discounts available, for example if you pay for multiple years of tuition in a lump sum rather than in separate payments.

Similarly, many universities offer bursaries or grants with a variety of eligibility requirements, so researching the institution ahead of time to ensure you’re aware of what the fees are likely to be is key to successful planning.

If you and your child aren’t yet sure which university they will be attending, look into a range of realistic options to get an accurate idea of what you can expect to pay. There are also various ways to reduce the costs of university as well as save money for your child, such as ensuring they have the right student bank account for their needs and finding the most wallet-friendly options for the household items while they are living away from home.

Tuition fee loans and maintenance loans, to help cover the cost of living while a student, are also available to cover some of the costs.

Making the most of your money

Depending on when you start to set money aside for your child’s education, and what age you will be when your child starts attending a fee-paying school or university, there are a variety of options to help get the most out of your money.

Opening an Individual Savings Account (ISA) allows you to save a tax-free allowance every year. There are four types of ISA: a cash ISA, a stocks and shares ISA, an innovative finance ISA and a Lifetime ISA and you can save up to £20,000 per year in one type of account or split the allowance across some or all of the other types.

You may also want to consider investing your money as equities, which are shares in the ownership of a company that are usually (but not necessarily) listed on a stock exchange, as well as some other types of investment. These don’t face the same threat from inflation as cash savings, where the value of your money will likely be eroded over time. Although there is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.

Remember also that the value of investments and the income from them can fall as well as rise and are not guaranteed and so you may not get back the money you put in.

Depending on when you will need to pay your child’s education fees, a combination of savings and investments could help you cover the costs.

Premium bonds are another tax-free savings option, with a maximum pay-in of £50,000.

You can cash the bonds in at any time and by investing in a premium bond you have the chance to win a tax-free prize, although the odds are currently as low as 21,000 to 1 (for every £1 Bond).

Grandparents can also make contributions to your child’s education using their tax-free gift allowance. They can give away a total of £3,000 worth of gifts each tax year without them being added to the value of their estate, and so you may not need to pay inheritance tax on them. It’s worth bearing in mind that tax planning varies with the circumstances of each individual and tax laws may change in the future.

A financial adviser can help you navigate through all your different options and choose the one that is right for you. They are also able to help you create and stick to a financial plan so you can achieve your savings goals for your child’s education.