Selina Finance’s Private Clients specialist Joe Askew CeMAP on planning ahead on school fees – especially with the future threat of a VAT introduction

Q: With education costs soaring and the impending threat of VAT, what options are available for parents to manage school fees more effectively?

A: Whenever I speak to parents (and grandparents!) of young children about their finances, the cost of education is always the hot topic. Simply understanding the range of financial options can be a challenge, but it can also unlock significant opportunities.

Scholarships and bursaries are at record levels according to the Independent Schools Council (ISC). Monthly payments can smooth out big termly bills and a variety of loan options can help finance the cost. Traditional wisdom dictates that ‘if you haven’t started saving before your child is born, then it’s already too late’. While this may be true for many people, a new generation of parents is looking to use the equity they have worked hard to accumulate in their home to finance their children’s education over the longer term. This is where Selina Finance’s Home Equity Line of Credit (HELOC) comes in.

A HELOC leverages the equity you’ve built up in your home, offering a line of credit that you can draw from as needed. This option is particularly appealing for school fees because it provides the flexibility to borrow only what you need when you need it. This differentiates it from other secured loans (where you receive a lump sum and start paying interest on the entire amount immediately) which can result in savings on interest payments.

Having an additional buffer built into your budget for school fees can help ensure you avoid potential cash-flow issues in the future”

The average cost of a private day senior school is over £16,000 a year now and boarding can be over £50,000. Many customers speak to us about the difficulties they face when their children move from prep to senior school and the additional cost burden this entails. This is particularly prevalent when you have multiple children overlapping at school at the same time. Regardless of which solution parents choose to manage this challenging time, they should always be aware that education costs can escalate.

Depending on uniforms, school trips, devices, and unexpected rises like VAT, it nearly always costs more than you originally planned. Having an additional buffer built into your budget for school fees can help ensure you avoid potential cash-flow issues in the future.

One of the reasons that some of Selina’s customers have recommended our product is because they can ensure that they have sufficient funds needed without committing to a fixed borrowing amount on day one, while still allowing them to spread the cost over a longer term. On top of this, the cost of borrowing with a HELOC can be more favourable compared to traditional unsecured loans or credit cards thanks to the security that your home equity provides. This means lower interest rates and potentially more money saved over time.

As with any financial decision, it’s important for families to consider the implications of using their home as security. Disciplined borrowing and repayment are crucial to avoid financial pitfalls. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Selina Finance

Further reading: Wolfthorn Knight Tuition on 11+ support for an anxious student