Private School Fees and Servicability

Discussion in 'Property Finance' started by Harry30, 12th Aug, 2018.

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  1. Harry30

    Harry30 Well-Known Member

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    In a couple of years, private school fees start. These have an obvious impact on servicability with the banks, as they must be declared as part of living expenses declaration. Is there some strategies for minimising the affect on servicability. For example:

    Paying upfront so I will not have the ongoing expense (eg. Pay full 6 years, so ongoing expense eliminated. Could you pay 1 year or 2 years upfront?)

    Put sufficient cash into a trust dedicated to providing for children’s education, so no ongoing commitment from me personally.

    Can you purchase an education bond that pays ongoing education expenses (Do those type of things still exist? Sort of like Christmas Club but for schools fees. Certainly not preferred as like to maintain control and invest money myself).

    Interested in hearing any ideas?
     
  2. wylie

    wylie Moderator Staff Member

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    I paid up front for each child for similar reasons. It wasn't serviceability I was concerned about but more that I didn't want to have to scratch about looking for fees. We had assets but cashflow was a real problem at the time.

    I do recall paying several years at a time. I may even have paid the whole lot.

    I remember for the first we got a good discount (maybe 10% from memory) to pay upfront. By the third child, the discount had either reduced or disappeared.

    But for all of them, paying upfront meant I was paying years ahead at the rate for the year I paid them. It was a big saving for us.
     
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  3. Harry30

    Harry30 Well-Known Member

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    Thanks Wylie. Good points. Would avoid the normal yearly CPI+ increases (did not think of that). And I know the school does offer a discount for upfront payments.

    Did you pay the full 6 years (or 12 years) upfront?
     
  4. wylie

    wylie Moderator Staff Member

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    Our kids went to the local state school and just to high school for five years. Now it is six years at high school I guess. But I paid five years up front definitely for the first son who won a half scholarship, so it was easy. Then we followed suit for the others. I'm fairly sure I paid all five years in grade 8 (first year of high school back then).
     
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  5. Harry30

    Harry30 Well-Known Member

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    Thanks. I am assuming that if you indeed paid the full amount upfront (for the whole period), it would eliminate the serviceability issue. The brokers on this forum will correct me if I am wrong.
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    There's some mob called Aust scholarship fund (or something like that) - you put in $??? each month/pay and they pay your fees at some point, can also be extended to cover uni as well.

    Linky

    (we put $100/month per kid aside from the time they were born, increasing it by 10%/year).
     
    Last edited: 12th Aug, 2018
  7. willair

    willair Well-Known Member Premium Member

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    We used to pay one year up-front ,I think they maybe gave 5% discount if you paid the entire bill for the year-not sure if you could pay up to 5 years and above..
    One item to keep in the back of your mind is what ever the yearly school fees costs-double that number ,because the fees are only one part of the costs..
     
  8. ChrisDim

    ChrisDim Well-Known Member

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    A lot of cash to part with up front, but well done if you can afford it! My daughter is in year 12 doing her trials atm and I have just paid for her last bit of tuition fees (YAY!)... then 2 more years for son.... and then its over, right?????
     
  9. wylie

    wylie Moderator Staff Member

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    Very much depends on the school though (assuming you mean excursions etc that are on top). With our school, the fee covered absolutely everything, including camps (unless you chose to seek private tutoring in music or similar). But you raise a very good point. I know our neighbours' sons went to a very elite school where the fees were at least double, plus they had many other fees on top (camps etc).

    It pays to check these extra costs out before making a decision.
     
  10. wylie

    wylie Moderator Staff Member

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    We really couldn't afford it. First son was easy - half fees. Second son we chose to put it on our housing loan because it was still cheaper to pay bank rates than a 10% fee increase each year, plus we got 10% (might have reduced to 5% by then) on the total.

    My main motivation, apart from paying five years at grade 8 rates, was that we had cashflow issues, and I wanted to be sure we could cover the fees.
     
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  11. Scott No Mates

    Scott No Mates Well-Known Member

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    Only If you have sold the house off-market and move away during schoolies week.
     
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  12. willair

    willair Well-Known Member Premium Member

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    It was a small private school on the inner southside ,all the ""Elite"' schools we applied for and paid the entrance fees we never had a placement..But the extra costs in books clothes a few plane trips bus trips ect ,all add up over time..Now one of the daughters is a teacher at the same school ,the costs never mattered the end result was the only item that mattered..
     
  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If you have the cash to pay for it , or have allocated cash shares or other capital assets that you may sell where we don't need the income from those , then servicing should be not affected

    Ta

    ROLF
     
  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you paid it upfront, it would not need to be declared as a living expense - only the books/ uniforms etc.
     
  15. Redom

    Redom Finance Strategist Business Plus Member

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    Its a bit of a grey area i guess - there's no specific guidance on this. If a regulator looked at it, it forms part of your living expenses, so will likely need to be disclosed that way. Practically, if you paid for it upfront and had no ongoing payments to make, there'd be a case for excluding it. Alternatively, could reduce the household budget elsewhere to make up for this expense and not impact serviceability (although this may be hard, some private schools in Sydney can be very expensive and make up HEM figures alone!).
     
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  16. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    As an aside most lenders will allow IO on an owner occupied home loan with this as the reason i.e. to manage cash flow until the fees finish. This doesn't change the servicing though in fact having IO makes it worse.

    Back to the question...if you had savings to cover the fees you could potentially exclude especially if last year or two but if its being met from pay to pay cash flow you'd need to include it 100%.

    I've never done a loan specially to borrow for school fees. I wonder if you borrowed the entire amount if that is a way around including in living costs? I think would be a hard sell to a lender but I suspect it happens quite a lot in one way or another.
     
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  17. Hamish Blair

    Hamish Blair Well-Known Member

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    An interesting idea - prepay the last year or two of fees from an offset account, and then voila, the expense is removed from servicability? Allowing much more to be borrowed than utilised from the offset account.
     
  18. KayTea

    KayTea Well-Known Member

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    That's a really good point. We start private high school fees next year, and I was planning on paying fortnightly/monthly, via direct debit. I've already got the funds sitting there, but figured that the longer I could keep them in my account, offsetting the mortgage, the better.

    However, with Gonski 2.0 reforms about to hit (2019-2023 implementation), there's a reasonable chance that fees for a lot of school are going to go up, and not by only a few dollars per year, either. Maybe trying to pay the whole lot now might help to avoid that. I'll have to check and see if the school will allow multiple years payment up-front (but I don't recall ever seeing that options in their fee schedule........).
     
  19. Depreciator

    Depreciator Moderator Staff Member Business Member

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    ASG. We did that. From a very young age. Monthly contributions that I think ceased when the girls hit high school. Then the money comes back in chunks in a January payment. I'm in my last year of double school fees and I got $26K from ASG in January this year. My top up for the year will be around $14K.
     
  20. larrylarry

    larrylarry Well-Known Member

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    Enrolled daughter into Private...then started talking to her about money and investment...she took the selective test and now offered a place. So I guess we are not going private.
     
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