7 Ways To Manage School Fees in 2023 (and beyond)

School fees are one of life’s four biggest costs. Below are the average median costs of education in metropolitan Australia over a 13-year period:

• Public schools: $83,869+

• Catholic education: $143,944+

• Independent education: $349,404+

Yes, you read that right. Even more shocking is that school fees are rising faster than inflation and have been doing so for over a decade now.

But don’t let these figures discourage you: kids are worth every cent. 

Plus, contrary to common beliefs, families with children aren’t financially disadvantaged compared to childless couples. 

So let’s look at how you can keep those school fees manageable, so you can fully enjoy seeing your children starting or going back to school.

But before I get into it, let me say something you might not expect: sweating over the small stuff, such as saving on school uniforms, books and school devices, won’t make a big difference.

Instead, the seven tips below will help you make a dent in your children’s school fees and experience a noticeable improvement in your family budget.

Photo by Norma Mortenson

7 Ways To Manage School Fees in 2023 (and beyond)

1. Start early

The earlier you start dedicating a portion of your family budget to school fees, the easier it will be to manage them.

Set aside $1,600 a month from birth until your child finishes high school (best place for it is your mortgage offset account). This will cover school fees for their entire education.

Setting aside $1,600 each month can be tough with child care and all other expenses. But if you wait until your kid starts school, you’ll have to increase the monthly sum to $2,500 to cover all tuition fees.

2. Defer the move to private schooling

Do some research into your local state school and see if you feel comfortable with it. Choosing this option for the first few years will save you money and help you grow a network of friends in the neighbourhood. Then your kid can make the move to a private school, perhaps in Year 3, 5 or 7.

Waiting until Year 3 will save you roughly a sixth of the total cost. So, rather than setting aside $1,600 a month, you only need $1,300. If you wait until Year 5, it drops to $1,200 a month.

Keep in mind that changing schools in Year 7 can be very disruptive for your child. As you can imagine, decisions around your kid’s future need to take into consideration several factors well beyond money.

3. Beware of education funding products

There are a number of financial products marketed as tools for education funding. 

The two most popular products are offered by LifePlan and Futurity. Both are variations on insurance bonds (see below) but are better suited to funding University expenses.

The Australian Scholarship Group transfers all earnings (minus fees) to a pool of funds that gets distributed among those attending eligible university courses. This means that if your child doesn't attend university, you only get your contributions back. It doesn’t seem like a very attractive arrangement, does it?

LifePlan provides a return whether or not your child goes to University, but the tax benefits (over and above those provided by a regular insurance bond) are available only if your expenses cover eligible education fees when your child is over 18.

Therefore it’s best to keep these options for University fees.

4. Use your offset account

If you still owe money on your home loan, your mortgage offset account can provide one of the best after-tax returns, and the risk is minimal. You effectively earn the home loan interest rate after tax (currently the average variable mortgage interest rate is 3.93%).

Keep an eye on the balance of your offset account so it doesn’t exceed the balance owed on your loan. You could transfer the interest you earn on the excess to a high-interest savings account or invest it.

5. Insurance bonds

Insurance bonds are a form of managed fund issued by an insurance company. They pay tax at 30% so you may save on tax if you earn over $45,000 per year.

If you keep your investment for 10 or more years, your tuition expenses become tax-free.

You don’t have to include these earnings on your tax return, so it can help you retain access to Family Tax Benefit A (when compared to investing in your own name). Most bonds allow you to choose the type of investment, so you can allocate your funds to growth assets like shares, which can give better returns over longer periods.

The other benefit of insurance bonds is that they can be protected from creditors if you fall into bankruptcy.

6. Talk to the grandparents

Money invested in Super funds is both accessible and tax-free for people over 65, so grandparents could help — if they are retired and not dependent on the pension, of course. 

Be mindful of any government benefits they might receive, as you don’t want to impact them.

7. Put your savings where taxes are lower or negligible

If you are a couple, you should invest your savings in the partner's name who pays the lowest tax rate. If one of you earns less than $20,500 per year, they won't pay tax. And the tax rate is only 21% up to $45,000, so keep this in mind when allocating your savings.

What to Do if You Can't Afford School Fees

If you have problems paying your kids’ fees, talk to the school about it as soon as possible. Most will understand and many will provide alternative ways for you to pay. You may avoid the disruption of changing schools if the problem is temporary.

Schools could offer:

• A payment plan

• Deferring payments until circumstances improve

• Providing access to scholarships or relief with books and clothing

• Waiving fees based on academic and sporting achievements, or a long family association

• Payment in-lieu if you can provide professional services or other work to offset the fees owed

Whatever you agree on, make sure it is something you can maintain, and get it in writing. Keep the school up to date of any changes that might affect your ability to pay.

Bottom Line

School fees take a sizable chunk out of any household budget and some of the joy out of a very special time in the life of a family.

Getting prepared early can ease the burden and let you enjoy your kids’ Back-to-School in 2023… and the years to come.