# Saving for Private School Fees



## lledlledlled (9 Dec 2020)

Hi,

Sorry if this had been covered before but I can't find it if it has.

Considering sending our two kids to Private Secondary school in a few years, but having difficulty figuring out how much I need to have saved and by when. 

Child #1 is due to start in 2028, so 7 yrs to go. Child #2 will probably start 2yrs later. 

Allowing for a little inflation I'd expect the annual fees to be about €6500 by then in the school we are considering. Transition Year i compulsory so need to include 4th year also.

I also want to allow €7500 per year per child for 4yr 3rd level courses on the assumption that they want to go and qualify and can live at home during college. We are based in Dublin, close to a number of 3rd level options. 

So this gives me a total of €138,000 target. 

Here's the bit I'm struggling with...

Should I be aiming to have the full target on the first day Child #1 starts secondary school? Or assuming i can still save while they are in school years , do I only need half of it at the start? Some other fraction of it? I'm finding it difficult to figure out. 

Thanks for any advice


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## misemoi (9 Dec 2020)

What is your mortgage like? Can you investigate overpayment to clear it so that you can channel those funds to education fees when the time comes? Overpayment is the best risk free return on your funds.


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## Brendan Burgess (9 Dec 2020)

First of all, if you have a mortgage, you should be overpaying it and "mentally" allocating the overpayments to the school fees fund. 

When you need to pay for the kids, you will have a much reduced mortgage to pay which will release funds for the school fees. 

Assuming you have no mortgage, then the best medium to long-term investment is the stockmarket.  Your term is about 10 years from building up a fund to running it down.  So you should buy shares directly or a fund.


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## Thirsty (9 Dec 2020)

How much will you be able to fund from your salary when they start? 

Don't forget to budget for uniforms, books and extras.

By the time they are at 3rd level they should be able to work part-time / summers; if you cover board & keep they should be able to fund travel and social costs.

To add: fee paying schools are very much a Dublin phenomenon. The overwhelming majority of third level students in Ireland come from state schools.  Of course if children have additional needs, then fee-paying schools can make a huge difference.


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## Brendan Burgess (9 Dec 2020)

To get a very rough idea, you would need to an Excel spreadsheet something like the following. I have assumed a nil return on your investment.


Year1​2​3​4​5​6​7​8​9​10​11​12​13​14​15​16​17​18​Annual savings8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​child 1-7​-7​-7​-7​-7​-7​-7​-7​-7​-7​child 2-7​-7​-7​-7​-7​-7​-7​-7​-7​-7​Net savings (cost)8​8​8​8​8​8​1​1​-6​-6​-6​-6​-6​-6​-6​-6​1​1​Education fund16​24​32​40​48​49​50​44​38​32​26​20​14​8​2​3​4​

You will build up a fund, then slowly run it down.

You could make this more complicated by paying the savings off your mortgage in the first few years and then having lower mortgage payments towards the end.

Brendan



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## lledlledlled (9 Dec 2020)

300k left on mortgage. House value approx 480k. 
Had been overpaying regularly as much as we could but also trying to save for house renovations. Paused all of this a few months ago to save towards moving house, primarily driven by the fact that new house would be in catchment area of good public schools an would already have the renovations we need done.

Other half isn't too keen on the potential new area though and would rather stay closer to home. So we're now considering a more modest trade-up if we can afford private school and not have to worry about catchment areas. 

I've read a lot about overpayments over the last number of years and agree they are the best low risk return around. But I find it hard to figure out how much I need to be overpaying and at what point do I switch to saving cash. Future monthly repayments seem to fall pretty modestly when I make overpayments. How do I know I'll have enough surplus savings when I stop the overpayments to achieve a target of €138k? 

A lot of the overpayments appear to come off the capital balance, so the interest paid over the longterm is paid on a smaller amount, and that's great. But ignoring overpayments for a moment, if I'm just looking at cash, I can see from Brendan's spreadsheet calc how much I need to start saving now. How would I figure this out taking overpayments into account?


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## lledlledlled (9 Dec 2020)

Brendan Burgess said:


> To get a very rough idea, you would need to an Excel spreadsheet something like the following. I have assumed a nil return on your investment.
> 
> 
> Year1​2​3​4​5​6​7​8​9​10​11​12​13​14​15​16​17​18​Annual savings8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​8​child 1-7​-7​-7​-7​-7​-7​-7​-7​-7​-7​child 2-7​-7​-7​-7​-7​-7​-7​-7​-7​-7​Net savings (cost)8​8​8​8​8​8​1​1​-6​-6​-6​-6​-6​-6​-6​-6​1​1​Education fund16​24​32​40​48​49​50​44​38​32​26​20​14​8​2​3​4​
> ...



I did an even rougher calc on a spreadsheet on the assumption that I would need half (but I had no basis for picking half as opposed to another proportion) of the 138k, and I figured i would need to save €9850 per year. 

I suppose the question now is am I better off overpaying my mortgage by that €9850 each year? If so, at what point do I stop overpaying and switch to saving cash?


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## Brendan Burgess (9 Dec 2020)

There are many moving parts. 



lledlledlled said:


> 300k left on mortgage.



How many years left on your mortgage and what is the mortgage rate? 

How much are you saving each year at the moment? 

And do you have any other assets or savings?

Brendan


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## lledlledlled (9 Dec 2020)

Brendan Burgess said:


> There are many moving parts.
> 
> 
> 
> ...



29yrs left. Part of loan is fixed for 10yrs at 2.99%, other half fixed for 2yrs at 2.3%.
Not overpaying at present. Saving €2400 per month.


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## David1234 (10 Dec 2020)

If you are saving €2,400 a month now your best bet is to, save for your upgrade/renovations, overpay your mortgage and fund private school out of your salary when it gets to that point.

A lot can change in 7 years so your best bet is to get your mortgage down to as low as you can whilst maximising your earnings.


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## Brendan Burgess (10 Dec 2020)

€2,400 a month is €30,000 a year. When you have two kids at the most expensive stages, it will be €14k a year, so you do not need to have an education fund. 



lledlledlled said:


> 300k left on mortgage.



If you overpay your mortgage by €30k a year for the next 7 years, you will have reduced your mortgage by about €230k , so your mortgage will be reduced to €70k and your repayments will be about 1/4 of what they are now. 

So, you do not need to worry about a fund. 

Brendan


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## lledlledlled (10 Dec 2020)

Brendan Burgess said:


> €2,400 a month is €30,000 a year. When you have two kids at the most expensive stages, it will be €14k a year, so you do not need to have an education fund.
> 
> 
> 
> ...



75% of the loan is fixed for 10yrs. As such, i can only overpay by a maximum of €22,500 over the 10 year period. 25% of the loan was originally on a variable rate but i fixed this for 2 yrs about a year ago so 10% overpayments will apply to this portion also.

As we recently enquired about a trading-up remortgage, i asked about the break-out fee. It is negligible for the 25% portion of the loan but is approx €50k for the 75% portion. 

So i don't think overpaying by €30k per year will be an option for me unfortunately. 

But good to know if i can maintain similar savings in the future as now, i don't need a fund as such. I should be simply able to use savings to pay school fees.


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## Brendan Burgess (10 Dec 2020)

lledlledlled said:


> 300k left on mortgage.





lledlledlled said:


> Part of loan is fixed for 10yrs at 2.99%, other half fixed for 2yrs at 2.3%.





lledlledlled said:


> 75% of the loan is fixed for 10yrs.





lledlledlled said:


> i asked about the break-out fee. It is negligible for the 25% portion of the loan but is approx €50k for the 75% portion.



So you have a €300k mortgage
75% (not half?)  or €225k is fixed for 10 years @ 3% 

So for the next ten years, you will pay interest of 30% or about €60k given the fact that you are reducing the capital every month.

And they want a €50k early repayment fee? 

Which lender? 

That seems very wrong. 

Brendan


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## RedOnion (10 Dec 2020)

50k break fee is way off the mark. Did you get this in writing?

Another thing to try, depending on lender, is to ask them to shorten the term. For some they don't trigger a break fee, but same net result in terms of you overpaying.


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## lledlledlled (10 Dec 2020)

Brendan Burgess said:


> So you have a €300k mortgage
> 75% (not half?)  or €225k is fixed for 10 years @ 3%
> 
> So for the next ten years, you will pay interest of 30% or about €60k given the fact that you are reducing the capital every month.
> ...



I can't find the Break Fee letter but i just called the bank to confirm what the fee was. It's a couple of months ago but has expired now, but it was €19,500. Apologies, i don't know why i had 50k in my head.

My memory, i think the original loan (with a different lender) was €308k. We switched after a year or two and fixed 75% of the loan for 10yrs, of which about 2-3yrs have now passed. 

Any time we made an overpayment, i requested that it be paid against the smaller portion of the loan, as a higher rate applied to it. However, statements from the lender are very vague and there is no online access so it was impossible to see if these requests were being implemented correctly. Judging from the Tracker Mortgage scandal, this lender doesn't have a great reputation when it comes to applying correct interest rates. 

As we had other savings goals at the time, our overpayments were relatively modest, less than 15k in total. 

As our more recent plans have involved Trading Up, i requested (and received) all of these overpayments back, with the intention of using this as a deposit towards the next property. 

Moving house will involve some sort of bridging loan (i'm using the wrong term here, i think it begins with a P) whereby we'd need to pay the (negligible) Break Fee for the smaller portion of the loan and the terms of the 10yr portion will remain unchanged. That is, unless we sell the house and don't buy another one, in which case the full Break Fee becomes payable. I don't know what period of time we have to buy a house before this becomes payable.


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## Steven Barrett (10 Dec 2020)

lledlledlled said:


> Hi,
> 
> Sorry if this had been covered before but I can't find it if it has.
> 
> ...



Add in €20,000 each for a Masters, which a lot of people are now doing after college. 

You should not be aiming to have all the money by the time that the start their education. Great if you can but they will be in second and third level education for 10 years, that's far too long a period. 

How much do you need at the start? You only have to have their first year fees in year 1. Lots of parents pay fees from cashflow each year. It depends on how much you earn. 

Also, in first year, factor in an addition €500 - €750 for books, sports gear, uniforms. It's frightening how much stuff you have to get in year 1. Also, public transport costs (Luas is €1 a trip for a kid), mobile phone (GoMo @ €13.99 per month), does the school have a canteen? Will you child be buying their lunch there everyday? Pocket money. 

I wouldn't overpay your mortgage and then reduce payments as a method of saving for education. Start investing and get the money working for you. When you child is nearing 1st year, redirect the regular savings to cash to cover the 1st years fees. Build up some cash each year and use your regular investment savings to supplement them. 


Steven 
www.bluewaterfp.ie


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## Brendan Burgess (10 Dec 2020)

€19,500 on €225k still seems high. 



RedOnion said:


> ask them to shorten the term. For some they don't trigger a break fee,



That is a great idea. 

Brendan


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## Thirsty (10 Dec 2020)

SBarrett said:


> Masters, which a lot of people are now doing after college


Personal opinion, but I reckon if you get them finished with a primary degree & no debt, thats a good start in life & the Masters they can fund themselves. 

(Nothing wrong with a nice few bob at birthdays / Christmas, but I think they should be independent by then).

I believe a Masters is more valuable if you have a bit of work experience behind you.


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## RedOnion (11 Dec 2020)

SBarrett said:


> I wouldn't overpay your mortgage and then reduce payments as a method of saving for education. Start investing and get the money working for you.


Hi Steven,
You're suggesting that there are risk adjusted, after tax returns of in excess of 3% available, if recommending this approach. Have I understood correctly?

If you have, I'll have to get in touch with you. I've some money to invest, but I also have the option to borrow a large lump sum at 3% which sounds like a no-brainer to use for investment.

Red


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## Steven Barrett (11 Dec 2020)

Thirsty said:


> Personal opinion, but I reckon if you get them finished with a primary degree & no debt, thats a good start in life & the Masters they can fund themselves.
> 
> (Nothing wrong with a nice few bob at birthdays / Christmas, but I think they should be independent by then).
> 
> I believe a Masters is more valuable if you have a bit of work experience behind you.



Just going on what I am coming across in my day to day work. When I finished college, most people got a job, less did a masters and some then did one later which their employer paid for. There seems to be more of a shift to students carrying on from their primary degree straight into a masters. I have no idea what employers are looking for in the bigger companies and whether you are at a big disadvantage if you don't have a masters.


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## DublinHead54 (11 Dec 2020)

RedOnion said:


> Hi Steven,
> You're suggesting that there are risk adjusted, after tax returns of in excess of 3% available, if recommending this approach. Have I understood correctly?
> 
> If you have, I'll have to get in touch with you. I've some money to invest, but I also have the option to borrow a large lump sum at 3% which sounds like a no-brainer to use for investment.
> ...



There is a balancing act right? It makes sense to overpay your mortgage, but you can't pay school fees with a part of your house equity. 

So if you need fees in 10 years, you'd have to stop overpaying at 10-T years to allow you build up the excess cashflow from reduced mortgage payments to have the pot to start paying your fees at 10 years. 

I would start with a blended approach with the target of working out how much can I save each month (2,400), based on this the OP can fund the annual fees roughly from savings. I would then suggest at the starting point (8 years) to have 3 years of fees (39,000) to start. That translates to saving 406 per month. Leaving roughly ~2,000 per month to fund overpayments, pension AVCs etc. I would then use a portion to overpay the mortgage knowing that in 8 years you will have lower mortgage payments which will help increase the ability to fund the fees from monthly cashflow. 

I would monitor annually and adjust as circumstances change. Whilst, it may not be the most efficient way to maximize from a purely mathematical approach, it allows the flexibility of life to be factored in.


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## Steven Barrett (11 Dec 2020)

RedOnion said:


> Hi Steven,
> *You're suggesting that there are risk adjusted, after tax returns of in excess of 3% available, if recommending this approach. Have I understood correctly?*
> 
> If you have, I'll have to get in touch with you. I've some money to invest, but I also have the option to borrow a large lump sum at 3% which sounds like a no-brainer to use for investment.
> ...



No I'm not. How can I predict what future market returns are going to be? Over the last 10 years, you would have certainly done better by investing your money but you cannot say that because the last 10 years were great the next 10 years will be too. 

The OP is planning for an expensive time in her life and wants money in the bank to secure it. I calculated her mortgage is currently €1,232 a month. If she overpays it by €820 a month (I know they are on fixed term at the moment). at the end of 8 years, the mortgage will reduce to €765, saving them €467 a month in repayments or €5,604. Realistically they will have to do this a year out from secondary school to have enough cash for year 1, so their mortgage will be higher (don't have time to redo the figures). 

What if she or her husband are made unemployed or have a reduced income when school fees come around? The reduced mortgage will take pressure off the mortgage repayments but it won't help them pay for their kids to go to school. 

Not everything has to be mutually exclusive, they do have the choice of a little from column A and a little from column B.  


Steven
www.bluewaterfp.ie


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## RedOnion (11 Dec 2020)

Dublinbay12 said:


> There is a balancing act right? It makes sense to overpay your mortgage, but you can't pay school fees with a part of your house equity.
> 
> So if you need fees in 10 years, you'd have to stop overpaying at 10-T years to allow you build up the excess cashflow from reduced mortgage payments to have the pot to start paying your fees at 10 years.


I agree to an extent about the balancing act, when it comes to most people.
But we're looking at a specific case here, not most people.

The OP currently has free cash flow of 2,400 per month, and a mortgage payment of c. 1,200.
They don't actually need to save at all, as their cashflow will be enough to fund their children's education. So overpaying their mortgage makes sense.

Overpaying mortgage actually makes sense for a lot of people, but the psychological side of having a savings pot stops them doing it. Take a PTSB mortgage as an extreme. You can overpay, and just leave the funds sitting as a credit. Then when you need to divert money elsewhere, you just stop paying the mortgage, and the credit gets used up.

Something that people overcomplicate is the idea that they have to have the entire education fund saved up by the start date. This isn't the case at all. Private school and college is a cost spread out over 10 years. So you either try to save up the total amount before, or remove (or reduce) all of your other outgoings before the cost start so that you can find from free cash flow.


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## RedOnion (11 Dec 2020)

SBarrett said:


> Not everything has to be mutually exclusive, they do have the choice of a little from column A and a little from column B.


I completely agree.

With respect (and I do have a lot of respect for you), I picked up on the 'get the money working for you' comment in your original post, which just comes across as sales person speak. I stand by my comments that overpaying the mortgage is the best way to get their money working for them, in this case.

I think some of the advice ignores the OPs current savings of 2,400 per month. They could theoretically completely clear their mortgage in 8 years at that rate, which wouldn't be a bad position to be in. But that's extreme, and shouldn't be taken at the expense of under funding pensions, having an emergency fund, or living.

As for losing a job - I think in that scenario, regardless of whether savings have been earmarked for education or not, a reality check needs to come into play regarding private education.


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## Firefly (11 Dec 2020)

Hi OP,

It may be financially better to overpay your mortgage, but I would have an education fund too. You just don't know what's around the corner and it would be awful to have to pull the kids out of school if the funds are not there... Maybe an education fund = 2 years' fees or something?


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## Brendan Burgess (11 Dec 2020)

The OP has an excess of income of expenditure of €30k a year.  His fees will be, at most, €14k a year. 

Unless he anticipates problems, then he does not need a separate education fund, much in the same way as he does not need a separate beer fund or a separate holiday fund. 

It would be very different if he had an excess of income of €5k a year and fees of €14k a year.  He would have a deficit of €9k a year for a few years and would need a fund to finance that.  Or if it were a long way away, he could pay down his mortgage, but that would be a complicated calculation and balancing act.

And as Red points out, if his financial circumstances deteriorate, he needs to review if he can afford a private school. 

Brendan


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## Firefly (11 Dec 2020)

Brendan Burgess said:


> And as Red points out, if his financial circumstances deteriorate, he needs to review if he can afford a private school.


Hi Brendan,
If sending their kids to a private school is very important to the OP, then, imo, putting money aside for this would be prudent. _Not from a financial perspective, but for piece of mind_. If the OP goes through hard times when the kids are in private schools, at least they won't have to pull them out. If the OP is saving 30k a year - we are only talking about 1 year's savings. If it's obvious that the fees are not a problem when the kids are in the schools, by all means pay down the mortgage then. 



Brendan Burgess said:


> Unless he anticipates problems, then he does not need a separate education fund, much in the same way as he does not need a separate beer fund or a separate holiday fund.


You don't have a beer fund?


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## Brendan Burgess (11 Dec 2020)

The kids will not be starting in private schools for 6 years.

He does not need peace of mind.

If the world collapses for him in the meantime, he can send them to a state school.

If the world looks a bit uncertain with a year to go, he can then create a fund.

I wonder if this is a Covid issue?  I have seen a lot of people making bizarre financial plans, in case something very unlikely might happen.  It's as if there is an anxiety which I had not noticed before. 

Brendan


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