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  • FIRST POST
    • ameliab1909
    • By ameliab1909 11th Jul 17, 8:22 PM
    • 8Posts
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    ameliab1909
    Pay school fees in advance or invest money??!
    • #1
    • 11th Jul 17, 8:22 PM
    Pay school fees in advance or invest money??! 11th Jul 17 at 8:22 PM
    Hi there
    Am really keen to get some views on this..
    Got two sprogs in private school. The school are offering 2-3% discount for fees paid in advance (2 years fees = 2% off, 3 years 2.5% off, 4 years 3% off).
    We have got £117,000 which I think would just about be enough to scrape the 4 years and therefore attract 3% discount.

    My question is - would we be better investing that money or handing it over to the school???? I like the idea of not thinking about fees for 4 years! If we invest it there are tax implications I imagine and we need access to it at least once a year to pay fees (you can pay annually).
    Am feeling very confused and overwhelmed at all the options??? I see fixed bonds but they are only offering 0.75-2%.
    also worth mentioning that £88,000 of that £117,000 total was a remortgage and costs us £200 a month already. Paying most of it back is also an option????
    Any help/advice greatly appreciated..
Page 2
    • le loup
    • By le loup 12th Jul 17, 9:18 AM
    • 3,582 Posts
    • 3,420 Thanks
    le loup
    Why would a financially sound organisation want to get the cash in early and pay people to do it?
    Maybe they have cash flow problems. Maybe they are not financially sound.
    • Malthusian
    • By Malthusian 12th Jul 17, 9:51 AM
    • 3,022 Posts
    • 4,386 Thanks
    Malthusian
    Why would a financially sound organisation want to get the cash in early and pay people to do it?
    Maybe they have cash flow problems. Maybe they are not financially sound.
    Originally posted by le loup
    Excellent point but if you can borrow money off parents at 1.5% per annum or lower, you would, whether or not you needed the money. If they were offering higher discounts I might be worried about the school's finances. But at this level of discount, it seems more a way of getting cheap capital from parents who aren't very good at maths.

    IMO it is less about rate of return, and more about locking the parents in early - if they've paid four years in advance, it means they can't decide a year later that it costs far too much to give little Timmy a posh accent and they'll move him to the comp or a faith school. (Or it makes it a lot more awkward, at least.)
    • bowlhead99
    • By bowlhead99 12th Jul 17, 2:12 PM
    • 6,727 Posts
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    bowlhead99
    I agree Malthusian.

    A practical barrier (even if not legally binding) to lock in your customers by taking revenue from them up front well before the service is actually provided, can be a shrewd move for any business - particularly if the customers like the arrangement and feel they get something out of it.

    And getting long term finance cheaply is something that a huge number of businesses do, to bankroll their operations and support expansion, new services, or generally cheap working capital compared to the cost of taking it from banks or relying on shareholders. It does not always imply financial difficulties, but can often be the opposite - assisting you in creating financial strength and a robust business model.

    If they can spend the pot of advance fees received, that's a great source of free cash flow to support the business in its endeavours. If they can't - because of ring fencing or escrow agreements etc - then in practice they know that there is little risk of needing to repay to parents, so may still be able to borrow against it or use it as collateral for that new property development finance arrangement, lease commitment or whatever.
    • gingercordial
    • By gingercordial 12th Jul 17, 2:48 PM
    • 999 Posts
    • 963 Thanks
    gingercordial
    I might have missed this, but did the OP say if they can get a refund if necessary?

    What would happen if your employer suddenly relocated you and family to the other end of the country at the end of year 2? Is there an option to get back the unused fees?

    What if a child desperately wants to specialise in something that school doesn't offer, or is being bullied and wants to change school?

    What would happen if (god forbid) one of the children fell ill or was injured and so had to be taken out of school? Or worse?

    I would hope there'd be a proper set of T&Cs that would cover such eventualities, which needs to be studied to see how good a deal this really is. If there's no way of getting the fees back in unforeseen circumstances I wouldn't do it.

    The least I'd have expected in such an arrangement would be to lock in at today's prices so an effective discount, but if even that isn't on offer I definitely wouldn't take it.
    • IceTry
    • By IceTry 12th Jul 17, 7:17 PM
    • 23 Posts
    • 11 Thanks
    IceTry
    Why complicate your life? Why stress yourself over various options that only make a tiny difference.

    Just pay-as-you-go.

    Who wants to mess about with all the various legal Terms and Conditions should your children need to leave earlier, and fret about that unnecessarily. You already sound stressed!!

    For the sake of saving a few hundred (and maybe losing thousands if you get the Terms and Conditions wrong or have to struggle to get a refund should the need arise) it seems all advantage to the school and very little to you.
    Last edited by IceTry; 12-07-2017 at 7:58 PM.
    • lush walrus
    • By lush walrus 12th Jul 17, 7:50 PM
    • 1,915 Posts
    • 1,574 Thanks
    lush walrus
    Why would a financially sound organisation want to get the cash in early and pay people to do it?
    Maybe they have cash flow problems. Maybe they are not financially sound.
    Originally posted by le loup
    It's very common a lot of schools offer similar deals. Our school parents have complete freedom how and when they pay their fees, can be monthly split over ten months or per term or yearly. They do offer a longer advance payment too. That's apparently popular with foreign boarding students with favourable exchange rates.

    We pay two years at a time for our girls, but ours offer fixed fees and a 2 percent discount for doing such so it's worth it for us and means we just don't have to bother with monthly invoices.
    Last edited by lush walrus; 12-07-2017 at 7:53 PM.
    • TrickyDicky101
    • By TrickyDicky101 13th Jul 17, 8:15 AM
    • 2,722 Posts
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    TrickyDicky101
    I'm intrigued why you would remortgage releasing £88k cash with no plan in place as to what you would do with the money? What's the rationale behind it?
    • rpc
    • By rpc 13th Jul 17, 12:46 PM
    • 2,294 Posts
    • 3,488 Thanks
    rpc
    Beware - in Edinburgh, one private school closed (St Margarets - now a Travellodge).

    Anyone who paid their fees in advance just had to join the list of creditors and the school was insolvent so they got very very little back.

    We pay a year in advance rather than monthly because that helps us manage our monthly cashflow more easily. We wouldn't pay more than a year - you are getting a trivial discount and are opening up various risks. If it was at current year prices, then just maybe.

    edit: Story about St Margarets here: http://www.scotsman.com/news/parents-lose-up-to-163-30-000-as-st-margaret-s-school-goes-to-the-wall-1-813093
    • fred246
    • By fred246 14th Jul 17, 7:02 AM
    • 853 Posts
    • 469 Thanks
    fred246
    My older sister went to a private school. I was sent to the local comp. She used to get up early and put her posh uniform on. She had to get a coach into the city. All her friends lived nowhere near so my parents had to drive her miles to their houses at the weekend. I used to walk to the comp in my scruffy uniform. All my friends lived nearby so I could walk to their houses when I wanted. Her A level results were poor so she couldn't go to a university or polytechnic and went to a college of higher education. My A level results were excellent so I studied a prestigious course at a top university. She has never earned more than the UK average salary. I have earned six figures for the last 16 years.
    My wife is a teacher and when we had children we looked at private education. We went round a private boys grammar school which was rather dull. The local comp had much more equipment and as they specialized in the arts seemed far more exciting and vibrant. My wife's family are very anti-private so I think we were never going to pay for something that was freely available. A child attends school for 15% of it's time, sleeps for 33%. So what happens in the other 52%? We sent them to state school and paid for as many school trips as they could go on and then paid for lots of after school activities. Dance and music lessons. Sports. Scouts is fantastic and very cheap. We always have about 7 weeks of holidays a year when we explore the world with the children. This time is very valuable educationally. My son has now gone to study a prestigious course at an internationally renowned university one step higher than his dad! I think all A stars from a local comp is probably seen as better than all A stars from a posh private school. The worst thing you can do is to work harder to pay for private schools and then have less time with your children as a result. The other thing to say that some people don't seem to recognize is that the more selective a school is the better it's results are going to be! Simple statistics. Not rocket science.
    • bowlhead99
    • By bowlhead99 14th Jul 17, 8:09 AM
    • 6,727 Posts
    • 11,991 Thanks
    bowlhead99
    My older sister went to a private school. I was sent to the local comp...

    [etc.]

    ... Not rocket science.
    Originally posted by fred246
    It's great that you had excellent A level results, went to a top university,, sired a son who went to an even more top university, and earned a nice big salary, despite the challenges of being sent to school in a scruffy uniform and it being a comp school.

    However, how does that assist the OP with the specific question at hand, which is whether to take up the offer of discounted fees or find an alternate use for the money such as savings, investment or paying down a mortgage?

    The OP explicitly stated back in post 6 that they have made their decision on private over public and didn't take it lightly.

    FWIW, I also went to a state school and ended up with decent A levels and a degree and six figure salary, but mine was grammar rather than comp so we learned higher-level communication techniques such as splitting large blocks of text into multiple paragraphs.
    Last edited by bowlhead99; 14-07-2017 at 8:16 AM. Reason: Smiley
    • fred246
    • By fred246 14th Jul 17, 9:33 AM
    • 853 Posts
    • 469 Thanks
    fred246
    I thought it was generally agreed that you are better not paying school fees up front for a small discount. It's hard to resist making a comment on a money saving forum about whether it is worth paying them in the first place. It is an enormous amount of money.
    • kkgree1
    • By kkgree1 14th Jul 17, 10:08 AM
    • 285 Posts
    • 146 Thanks
    kkgree1
    I work in the independent sector and we offer similar discounts for paying fees in advance.

    I wanted to add the same note of caution that if the school closes you are likely to lose any advance payments. In my area two large independent schools have closed in the last year - Walden School and Alexanders, not far from you in Suffolk. We know of some international parents who lost a year's fees which is not a small amount of money to lose!
    • Malthusian
    • By Malthusian 14th Jul 17, 10:40 AM
    • 3,022 Posts
    • 4,386 Thanks
    Malthusian
    I'm intrigued why you would remortgage releasing £88k cash with no plan in place as to what you would do with the money? What's the rationale behind it?
    Originally posted by TrickyDicky101
    Offset tracker mortgage with a dirt cheap interest rate of base rate + peanuts maybe?
    • TrickyDicky101
    • By TrickyDicky101 14th Jul 17, 12:08 PM
    • 2,722 Posts
    • 1,764 Thanks
    TrickyDicky101
    Offset tracker mortgage with a dirt cheap interest rate of base rate + peanuts maybe?
    Originally posted by Malthusian
    An entirely reasonable possibility
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