Making school fees affordable

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

Their main asset was their home, valued at £300,000. They had a mortgage of £130,000, leaving £170,000 equity.

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

1. Pay school fees as efficiently as possible.

Spread the fees over a longer period of time to make them affordable. The most efficient borrowing mechanism was to extend the mortgage.

A drawdown 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 we recommended they also 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.