School fees: a luxury you can’t afford
The credit crunch is taking a terrible toll on the middle classes. They’ve started to give up their organic boxes (sales are down 10 per cent at some companies), their foreign holidays (can the new fad for camping really be a choice thing?), their Chelsea tractors, and even their privacy (their second homes are now available as holiday lets). So what’s next? Probably their children’s private education.
School-fee inflation is running at well over 6 per cent a year, the average day school costs £3,000 a term, and top schools such as Eton and Wycombe Abbey charge £9,000-plus. Fifty-one schools in the UK charge more than £25,000 a year. That means if you have two children at top schools, you need to find £60,000 out of post-tax income — £100,000-odd pre-tax — just to pay the basic fees. And even for a bog-standard day school you still need to find £30,000 before tax and before uniforms, ski trips, violins and polo lessons. In total, Sainsbury’s Finance says we are spending well over 30 per cent more on private education than we were in 2003-2005, while real incomes, outside a few obvious sectors, have barely budged. Recent research from Halifax showed that only 13 professions still pay enough to allow parents to send their children to even the cheapest private school. In 2002, 23 did. Yet the number of children being privately educated in the UK has risen by 40,000, to about 615,000.
So where’s the money coming from? Savings and grandparents, but also increasingly from banks. According to Sainsbury’s Finance,18,000 parents took out personal loans last year for an average of £9,005 each to pay school fees: a total of around £165 million, and Sainsbury’s expects that number to rise. But that’s just the beginning. The lifeline for parents over the last decade has been mortgage equity withdrawal — bumping up their mortgages to get their hands on ready cash. It’s hard to get exact numbers but a survey by the National Centre for Social Research in 2006 suggested that of the £22 billion worth of equity withdrawn in 2006, around 1 per cent went specifically towards school fees. So that’s at least another couple of hundred million, and my guess is that this figure is on the low side, given the facts that almost no one saves for school fees in advance and that every newspaper article ever written on the subject suggests remortgaging as the best way for non hedge-fund managers to pay for school fees. The problem, of course, is that mortgage equity withdrawal is no longer an option for most parents. Not only have interest rates on most mortgages soared dramatically, but new loans come with huge upfront fees and are only likely to be affordable if you have equity of 75 per cent in your home. That’s unlikely if you’ve been tapping it for £20,000 worth of school fees a year for the past decade. But even those who still have a fat cushion of equity should not think they are home free. They aren’t. House prices are forecast to fall anywhere from 10 to 40 per cent over the next few years. Draw out too much to pay school fees and you’ll be in negative equity by the end of the decade.
Already there are stories of rising levels of late payment, of parents asking to pay monthly rather than upfront every term, and of children being discreetly removed from expensive schools. Kensington mothers tell me that entry-level classes are admitting more children than ever — presumably in anticipation of losing a few along the way. It comes down to this. You have to pay your gas bill. You have to pay your mortgage. You have to pay your taxes. But there’s a free substitute for private education — state schools. Much as we’d all like to be able to (a recent poll for the Independent Schools Council showed that 57 per cent of parents would like to opt out of the state sector), no one has to pay school fees. And with unemployment rising for bankers as fast as for construction workers, house prices falling, inflation soaring and mortgage equity withdrawal nothing but a bubble memory, it won’t be long before cash-strapped parents start to wonder if paying for fancy private schooling is really worth the bankruptcy.
Most schools appear to be in denial about this. They still justify absurd price rises with guff about the need to upgrade facilities and hire the best staff. St Paul’s Girls’ School in Hammersmith recently raised fees by more than 14 per cent to £5,204 a term — an odd move given that a large percentage of their fees must be paid by City salaries. ‘Schools are underestimating parents sensitivities to fee increases,’ says Janette Wallis of the Good Schools Guide. If I was an independent headmistress, I’d be forgetting about new music centres, ensuite power-showers and all-weather lax pitches. Instead, I’d be looking to cut my costs — and my fees — as fast as I could.