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Case 2: Making School Fees Affordable

A married couple with 2 children wanted to look at alternative ways to pay school fees.

They were both teachers and between them earned about £79,000. They had no savings and therefore were trying to pay school fees out of income. Their main asset was their house valued at around £300,000 which they had a mortgage of £130,000 outstanding.

School fees were projected to cost £145,000 over the next 10 years, but with some higher rate tax the actual sum earned to pay the fees was another £40,000. The fee peak was about £2000 per month; clearly 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 5 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 a medium to long term, and Corporate Bonds, a low-risk product, was chosen. This matched the couples’ balanced 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 and assured the continuity of private education under all circumstances.