6 Ways to Pay your Private School Fees
The thought of having to absorb the exponential cost private school fees sends most of us heading for the hills however, what many of us don’t realised is there are a number of options out there that can help reduce the burden. Today on the blog, I list my top 6 strategies to help you pay your private school fees as well as the advantages and disadvantages of each.
Open a savings account and contribute as much as you can as early as possible.
Advantages: Low start up costs, low ongoing fees.
Disadvantages: You’ll be exposed to inflation, you’ll receive no tax benefits and given the current interest rate environment; your returns are expected to be low.
Depending on your time horizon, opening a portfolio consisting of shares and/or managed funds could be appropriate.
Advantages: By investing regular amounts and reinvesting dividends, you may be able to boost the return of the portfolio.
Disadvantages: Higher costs of fund management, less flexibility.
Using your mortgage redraw or offset account is perhaps the most cost effective way to put money aside for education expenses.
Advantages: If you have an existing mortgage, there are no entry costs. In addition, the money stored in your redraw or offset account offsets your interest payable and effectively reduces your repayments.
Disadvantages: You need to have a mortgage with eligible re-draw facilities. You will also need to have the available funds to service the loan once funds are withdrawn.
A number of grandparents are keen to contribute to the raising of their grandchildren. One such way is to “gift” funds annually to their grandchild and avoid tax implications.
Advantages: Tax Free
Disadvantages: Individuals are only allowed to gift up to $10,000 per year with a maximum of $30,000 over 5 years without affecting their aged pension. Check with your financial advisor and/or Centrelink before you decide to act.
If you have a large sum of money available, setting up a family trust may be a good option.
Advantages: Enables you to distribute investment income and take advantage of lower marginal tax rates.
Disadvantages: Administration costs and it will require specialist financial advice to set up.
Education Savings Plans
Education savings plans offer a tax-free investment strategy when used for education purposes however; it’s best to investigate the leverage these funds have over your hard earned cash.
In Australia we have two options:
The Education Fund from Australian Scholarship Group
Life plan’s Education Investment Fund
Both are designed for tertiary education and need to be thoroughly researched individually. We highly recommend talking to a financial advisor before investing.
Advantages: Provides a tax effective option to save for education.
Disadvantages: Fees such a management costs apply. They are no longer tax free if you don’t use earnings for education purposes.
Interest earnings will be paid to the nominated child however, if the child is under 18 and earns greater than $1,307pa in interest income, the full amount will be taxed at 45%. To enable this to work effectively, you will need to withdraw contributions to help with education purposes to reduce interest earnings and avoid tax penalties.