Drastic action to keep on paying school fees

INDEPENDENT schools in Scotland are outperforming most other regions in the UK, including London and the south-east, by attracting more pupils than ever. While the recession is leading to falling numbers in areas such as the south-west, Scottish schools have seen more homegrown pupils, according to the latest report from the Independent Schools Council.

And they are also attracting more than their fair share of overseas students, who are flocking to the country thanks to the combination of high standards and competitive fees.

Overall, the Independent Schools Council's annual census shows a 1 per cent fall in pupil numbers in the UK, from 511,886 in January 2010 to 506,500 in January 2011.

However, this underlined the trend of schools being supported by a 5.5 per cent rise in pupils from abroad to more than 24,500. Of these, 38 per cent were from Hong Kong and China, and 34 per cent from Europe, mainly Germany.

Across the UK, day pupils fell by 4 per cent as parents struggled to find the money to pay fees. Yet Scotland bucked this trend with a 0.4 per cent increase in day pupils.

Scottish schools have fewer overseas students, at 2.6 per cent of the population, compared with 4.8 per cent across the UK as a whole. Yet the country saw overseas numbers climb by 8.5 per cent, compared with 5.5 per cent for the UK.

Partly this could be the result of slightly lower fees. A term at a Scottish boarding school costs 8,009 on average, compared with 9,395 in Greater London and the UK average of 8,385. Similarly, day fees in Scotland are 3,115, compared with 4,232 in London and the UK average of 3,665.

Nevertheless, with families feeling the squeeze from higher petrol costs, general inflation and the rise in national insurance, all at a time when wages are falling behind, writing those cheques can be painful.

Many will already be making enormous sacrifices to give their children what they consider the best start in life they can afford.

Here are 15 ways to stay afloat:

1. Move house

If you live in an area with a poor school, but know of a better establishment across town, you will save money in the long run by making a move. If the school's reputation remains top-flight, it could pay dividends as house prices will stay strong.

2. Consider state boarding schools

There are a handful of state boarding schools with excellent academic reputations. Tuition is free and you pay a token amount towards the cost of the boarding.

3. Insure your income

The biggest blow to a family where the breadwinner is made redundant can hit the children if they are removed from a much-loved school at a crucial point in their education. By insuring your income you can prevent this happening.

4. Check out bursaries and scholarships

According to the survey, more than a third of privately educated individuals are now receiving help towards their fees. All children have a talent. Use it to negotiate a reduction.5. Pay in advance

Some schools will offer a sharp reduction in fees if you are able to pay for years in advance. The school can generally earn interest tax free because of its charitable status, which is passed back to parents. A typical reduction in fees of 4.5 per cent is worth 7.5 per cent for a higher-rate taxpayer.

But there are risks, not least that halfway through the child becomes unhappy and wishes to switch to an alternative. Worse still, the school could go bust.

6. Pay by instalments

Most schools run payments by direct debit. This will help spread the pain.

7. Borrow

If you need to borrow to pay for an independent education, then you should think again about your plans. The cost of independent education rises as a child grows, and you will be entering a never-ending quagmire of debt, in which you will probably drown. However, if you need to find some cash quickly to get you through the last couple of years, then you could consider releasing equity from your home by extending the mortgage.

8. Stall the taxman

The self-employed could effectively borrow the money short term from the taxman to get them over a temporary embarrassment, by delaying settling their tax bill. But always negotiate with HM Revenue & Customs in advance rather than simply not pay the tax you owe.

Still send in your tax return, as failing to do so incurs a 100 fine, and you will be charged interest on any money owed. But other penalty surcharges will be waived if you can come to a "time to pay" agreement.

9. Dust down old policies and trusts

It is often possible to borrow against endowment policies at reasonable rates. Alternatively, sell them on the second-hand market, where you should realise more than via a straightforward surrender.

If your children have inheritances which don't come to them until they are 21 or older, get out old family trusts. Many allow funds to be removed earlier in exceptional circumstances to meet education bills.

10. Unlock your pension

If you are 55 you can take a quarter of the value of your pension as a tax-free lump sum. Punter Southall chairman Geoff Tresman said: "Care should be taken, as this will obviously have an impact on your future pension."

11. Play hardball with the school

Negotiate hard for a reduction in fees, particularly if you have more than one child at the school. After that, if you can't raise credit any other way, ask the school for a flexible payment plan which spreads your payments over 25 years. If necessary, offer them a charge on your home and say you can pay interest only.

12. Bite the bullet

Start selling the family silver. Dispose of anything that will fetch a decent price. Now is a good time to shake out the jewellery box and sell any old gold you never wear.

13. Send your child abroad

More parents are considering sending their children to the continent or even South Africa. While annual fees at the average British boarding school top 25,000, top English-language schools in Europe might charge only 12,000, which can fall to under 10,000 in South Africa.

14. Ask grandparents to help

A good way to cut inheritance tax bills is to pass on money to grandchildren, and many grandparents are happy to help towards school fees.

15. Savings

Only by setting aside a significant amount of money regularly from birth is there any hope of meeting future fees as they arrive. Unfortunately, money can be scarce when babies are born, and most young families have little disposable cash to save. This is why most school fees are paid out of income, by the mother working, perhaps assisted by grandparents.

Where early financial planning is possible, money can be saved in Isas, either deposit-based or other investment funds. As fees rise ahead of inflation, it is useful to have some index-linked holdings to ensure your savings keep pace with inflation.

Similarly, equity-based investments have a better chance of holding their value against inflation. However, you should never take risks with money earmarked for education. If the market reels just as cheques become due, this can cause a headache.

A second property, which produces a regular income, can be another option if planning for fees some years ahead, as rental income tends to keep pace with inflation.