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Introduction

Private and Independent schools provide quality education and a unique experience for

your child. It is also one of the most significant financial investments you will make, so

parents need to start planning earlier to ensure that school fees do not affect other

investment and retirement goals.

Over the past ten years, the cost to send a child to an Independent or Private school has

increased between 54 and 61 per cent, while the cost of living (CPI) has only raised 23.5

per cent over the same period.

This is a dramatic increase from what parents were paying if their child entered year seven

in 2008.

Source: ASG Planning for Education Index

To pay for these ever-increasing school fees, parents could use their cash flow, redraw off

their home loan or plan earlier using a regular savings plan.

Planning earlier using regular savings can ease the pressure of these costs and reduce the

impact on their own retirement goals. There are three regular savings options that parents

could consider to help achieve their school savings goals:

▪ Personal Investment Account

▪ Education Bond

▪ Using home loan Offset Account

SCHOOL TYPE 2008 2018 % INCREASE

GOVERNMENT $53,756 $66,320 23%

INDEPENDENT (FAITH-BASED) $156,104 $240,679 54%

PRIVATE $295,214 $475,342 61%

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Investment Account

An investment account is a low-cost option that provides the investor with flexibility to

increase and decrease deposits depending on cash flow.

The investor has full control of the investments held in the account and can be more active

with the investment selection.

The investment earnings are taxed at the investors marginal tax rate, making it an

excellent option for investing via a trust or individual with a low tax rate.

Investment Account Features

▪ Available to Individuals, Joint Investors, Companies and Trusts.

▪ Approximate investment fees 0% to 0.62%pa

▪ Flexibility on investment strategy, investment selections, deposits and

withdrawals

▪ Taxed at marginal rates. For example, no or low tax for investments held in the

name of a non-working spouse

▪ Tailored approach

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Case Study: Investment Account

For a child to attend Private School in 10 years time with fees of $30,000 per year in

today’s dollars, parents will require total savings of $475,132. Given education fees

generally, outpace inflation, we have assumed school fees are increasing at 8% per

annum.

To reach the desired capital amount, a portfolio will need to be established with an

initial investment of $55,000 which is to be supplemented with deposits of $15,000 per

annum indexed by 2.5% per annum inflation.

The deposits will be invested in a Balanced, diversified portfolio with an assumed 6%

growth per annum after fees and at a tax rate of zero. Schools fees are drawn out of the

account during the six years of schooling.

Risk Profile – Experience Required/High Risk

$-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

$350,000.00

Education Investment Portfolio

Savings School Fees

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Education Bond

An Education bond is long term investment with features similar to a managed fund

combined with an insurance policy.

Education bonds can be tax-effective for long term investors with a marginal tax rate

higher than 30%, as long as specific rules are followed.

For a high-income earner, you do not need to include any earnings in your annual tax

return, and if the bond is held for ten years, all investment returns are distributed tax-

free if used for education expenses.

Education Bond Features

▪ Available to Individuals, Joint Investors, Companies and Trusts

▪ Management costs ranging from 0.95% to 1.80% per annum

▪ Limited flexibility for investment strategy and investment selection.

▪ The bond must be held for ten years to get the full tax benefit

▪ The investor can increase annual deposits by a maximum of 125% each year to

maximise tax benefits

▪ Tax offset of 30% offered on early withdrawals

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Case Study: Education Bond

For a child to attend Private School in 10 years time with fees of $30,000 per year in

today’s dollars, parents will require total savings of $475,132. Given education fees

generally, outpace inflation, we have assumed school fees are increasing at 8% per

annum.

To reach the desired capital amount the bond will need to be established with an initial

investment of $104,200 which is to be supplemented with annual deposits of $15,000

per annum indexed by 2.5% per annum inflation.

The deposits will be invested in a Balanced, diversified portfolio with an assumed 5%

growth per annum after fees and a tax rate of zero. Schools fees are drawn out of the

account during the six years of schooling.

Risk Profile – No Experience Required/Medium to High Risk

$-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

$350,000.00

$400,000.00

Education Bond Portfolio

Savings School Fees

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Home Loan Offset Account

Using your home loan offset account to save money is a no-risk option that provides

parents with a return equal to that of their current home loan rate.

For Example:

Your home loan balance $800,000

Your offset account $350,000

You’ll only pay interest on $450,000

Home Loan Offset Features

▪ Available to individuals who own a home loan

▪ No fees (check with your bank)

▪ No flexibility on investment strategy, your savings offset the interest you

owe on your home

▪ No tax implications

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Case Study: Home Loan Offset

For a child to attend Private School in 10 years time with fees of $30,000 per year in

today’s dollars, you will require total savings of $475,132. Given education fees

generally, outpace inflation, we have assumed school fees are increasing at 8% per

annum.

To reach the desired capital amount, an offset account can be established with an initial

investment of $28,930 which is to be supplemented with annual deposits of $28,930 per

annum for 16 years.

Using this strategy, the investor will save $115,218 in interest over the 16 years

assuming a 4% interest rate on the home loan.

Risk Profile – No Experience Required/Risk-Free

$-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

$350,000.00

Home Loan Offset

Savings School Fees

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Disclaimer

Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. This

report is current when written. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate

to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When

considering a financial product please consider the Product Disclosure Statement. Stanford Brown is a Corporate Authorised Representative

of The Lunar Group Pty Limited. The Lunar Group and its representatives receive fees and brokerage from the provision of financial advice

or placement of financial products. The Lunar Group Pty Limited ABN 27 159 030 869 AFSL No. 470948 © 2019 Stanford Brown.

About the Author

James joined the Stanford Brown Private Wealth Division in 2014. He has a background in

Retail Banking with HSBC Bank and has attained a Bachelor of Business, DipFP and more

recently AdvDipFP. He is a member of the Financial Planning Association of Australia (FPA)

and is an Authorised Representative providing advice to a wide range of clients with

diverse needs and circumstances.

His expertise lies in Investment Advice, Debt Management, Retirement Planning,

Insurance and Wealth Creation Strategies. He would welcome the opportunity to discuss

your needs.

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