Meeting the cost of private education

School fees usually run to a pretty hefty annual bill. Emma Lunn explains how to keep on top of the cost.

The number of children attending private instead of state schools is on the up - but how much does it cost and how can parents meet the cost of private education?

According to Halifax's latest annual research into private education, the number of pupils attending a private school reached 677,000 in 2006/07, an increase of 5.6% since 2001/02.

Research from the bank found that the average annual private school fee is just over £10,000 which adds up to a whopping £130,000 over 13 years of education. The cost is even higher if you include uniforms and additional expenses.

How can parents meet the cost?

The key to saving enough cash to see your kids through the private education system is to start saving early - perhaps as soon as they're born.

Initially, parents should maximise their tax free savings allowance by investing up to £7,200 in a mixture of a cash and equity ISAs each year. Cash ISAs have an annual limit of £3,600. As the "ISA season" approaches in the run up to the end of tax year deadline on April 5, there is likely to be more choice in the market. Read this article for a selection of the current best buys.

You might notice some cash ISAs are paying high rates but watch out for the small print. Saffron Building Society, for example, has a cash ISA paying 7% on regular savings. However savers can only pay in between £25 and £300 per month meaning it's not suitable if you have a lump sum you want to save. Another downside is that it doesn't accept ISA transfers from previous years if you want to consolidate all your ISA money into one high-interest home. But if you were planning to save on a monthly basis anyway, a tax-free regular saver ISA with a high rate would be a good choice.  

Fixed rate bonds are another option and would suit parents with a lump sum to invest. If you took out fixed rate bonds over different maturity terms, funds would become available each year when the annual fees have to be paid. The best buy at the moment is the ICICI Bank UK HiSave Fixed Rate Account which pays 3.90% fixed for a year.

For those that don't have a lump sum to get them started, ordinary (i.e. taxable) regular savings accounts allow you to save money each month up to a limit. Barclays currently offers a regular saver paying 6% and you can pay in between £20 and £250 a month.

If you need to borrow money to fund your kids' education, fund managers Family Investments suggest using your mortgage as a cheap way to borrow. However this depends on having sufficient equity in your property and with house prices still falling, being mortgaged up to the hilt is risky.

Some private schools allow parents to negotiate a discount if they pay several years in advance - however this reduces your flexibility in the event that you move home or the school is not the right one for your child.

The recession

You might find you have been paying school fees quite happily, but the downturn in the economy means that if you lost you job private education may no longer be affordable. But before taking the children out of their school and transferring them to a state school you might want to look at other options. Some schools will offer bursaries or other financial help. According to Halifax 31% of pupils at independent schools receive help with their fees.

Other options include downsizing your house or reducing other expenditure such as holidays.

Private vs state

Of course, it could be argued that private education is an unnecessary expense with some people disagreeing with it on principle. After all, it encourages social division. Or does it? On the other hand you could argue that if parents want to spend their hard-earned cash on a private education for their kids then it's their choice.

Me? I went to the local comprehensive and I'm proud of it!

More: Five ways you can still earn 6%+ on your savings | There's still hope for savers