‘Terrifying’ school fees force parents to get creative

With private education costing £13,500 a year on average, families are finding unusual ways to pay, finds Sam Brodbeck

Offset mortgages, pension cash and peer-topeer loans are some of the imaginative ideas families are resorting to so they can meet ever-rising private school fees. Last year, the number of pupils at fee-paying schools reached an alltime high of 525,000.

The data, from the Independent Schools Council, which represents the vast majority of private schools, also shows the average day school fee in 2017 was £4,473 per term, a rise of 3.6pc on 2016’s figures. Boarding school fees have risen even faster.

Decades of above-inflation rises have forced parents to consider alternative ways of funding their children’s education. Trust funds and cash from grandparents remain among the most common methods, but growing numbers are using other options. These include taking out loans to pay fees in lump sums to benefit from upfront discounts.

More than 600 users of Zopa, Britain’s largest peer-to-peer lender, took out loans to cover private school fees over the past two years, totalling around £4m. The peer-to-peer sector matches individual borrowers and lenders, cutting out traditional banks.

Borrowing via these platforms remains niche, and potentially expensive – Zopa would not say what interest rate it charged the customers who borrowed for school fees. But it shows the breadth of options available to parents, said John Murphie, of the Independent Schools’ Bursars Association.

“Borrowing to pay fees is not common but it shows there’s a determination to pay for education

Mrs Moody-Stuart said most of her clients relied on grandparents to meet school fees. Many people now in their 60s and 70s have guaranteed income from generous “final salary” pension schemes, she said, which in many cases is passed directly to grandchildren.

Gifts are free of inheritance tax (IHT) if the person who makes the gift survives for at least seven years. Gifts made between three and seven years before death receive partial relief from the normal 40pc rate of death duties.

In addition, everyone can give away £3,000 a year without it being added to the value of an estate for IHT. Extra money can be passed on tax-free as long as it derives from income and does not affect your quality of life. This little-used exemption has no cap, but HM Revenue & Customs must deem that the gifts qualify.

Financial advisers also report that over-55s are using the “pension