Putting the kids through independent school has long been one of the defining aspirations of the upper-middle classes. But it isn't getting any cheaper: surveys put the cost of raising a child to the age of 18 at £100,000 or more, and even this substantial sum excludes private education fees and typical university costs of around £30,000.
Sending a child to an independent school (the catch-all term for non-state schools) will cost an average of £8,388 in fees alone this academic year, according to research by Halifax Financial Services. And that's for day pupils - boarding fees now average £18,828 a year.
Fees have doubled in the past decade and continue to rise well ahead of inflation, so a private education could easily end up costing a six-figure sum in total. Although there are cheaper schools, particularly away from London and the south-east, and up to a third of children in effect pay reduced fees (see panel p67), even the Independent Schools Council Information Service (Iscis) concedes that a private education is a huge financial commitment for parents. Are the costs worth it and how can families minimise the pain?
Certainly, the UK's 2,000 independent schools must be doing something right: numbers of pupils have risen to nearly 700,000 out of an overall school population of 10 million. Recent growth has been most marked among day girls. Iscis figures show that 92% of A-level leavers from independent schools go on to higher education, while 73% of all A-level grades are As and Bs, compared with 46% nationally. Grades at GCSE show a similar outpacing of the state sector.
As a starting point for value-conscious parents, our table (right) shows the top academic performers that charge relatively low fees (either in their region or for independent schools generally). However, Iscis says many parents cite reasons other than academic league-table positions as more important for going independent: small class sizes (an average of one teacher for every 10 pupils), discipline, good teaching, individual attention and better sporting and other facilities.
Educational consultant Gabbitas points out that children with learning difficulties, such as dyslexia, can be well catered for in many mainstream independents. The real benefit of going independent is 'value-added', says Iscis' Ruth Thorogate. 'It's about wanting the child to do the best they can do and allowing them to reach their full potential.'
But whatever its value, private education is likely to be one of the biggest financial commitments a family will take on. It's also important to realise that the eye-watering fees you incur when you send your first child to independent school are likely to be just the start of a ballooning cost.
The most expensive years are likely to be when children are in their late teens. You could by then be paying two or more lots of fees. And each set of fees could be approaching double the starting amount, taking into account fee inflation and the fact that secondary schools charge more than junior schools. So the cost commitment can grow rapidly to tens of thousands of pounds a year.
Some parents will be able to meet school fees out of surplus income as they fall due - typically, termly - but these will tend to be earning upwards of £250,000, says Matthew Grimes, a director at UBS Wealth Management.
For most people, paying fees out of income will be a struggle. Even the bills for one child will be the equivalent of taking on another big mortgage.
Many parents end up using some combination of income, savings, borrowing and help from grandparents. Sacrifices are common, such as a non-working spouse going back to work and families doing without holidays. 'Even people on six-figure salaries are broke because they're paying school fees,' says Justin Modray of investment adviser Bestinvest.
Additionally, the price for parents could amount to a 'severely compromised retirement', he adds, as money that would otherwise solve a middle-aged parent's pension crisis goes instead on school fees. Modray calculates that sending a child to day school from the age of 11 could cost a parent the equivalent of £20,000 a year in pension when they reach retirement - assuming the money was otherwise invested.
The secret of making school fees more manageable is to build up savings and investments. And, as with saving for a pension, the earlier you start, the more affordable it is and the more you can hope to benefit from investing in the stock market for higher growth.
Bestinvest calculates that putting about £600 a month in a tax-free savings scheme, such as an Isa, from when a child is born until they are 11 could create a lump sum big enough to cover all subsequent fees and university costs. Although there's no tax relief on school fees saving or on the fees themselves, it is possible to use other tax breaks to improve returns and reduce costs.
Couples should remember that they each have their own personal tax allowances.
Putting income-producing investments in a non-working spouse's name can effectively make returns tax-free. 'Roll-up' bonds offered by life insurance companies, for example, can be used in this way to produce tax-free payouts to help cover fees as they fall due.
The shorter the time horizon, the fewer risks parents can afford to take with investments and the more money they'll need to put aside to build up the required funds. Even parents who have saved up for years in advance should think about shifting those funds into lower-risk assets as the bills approach.
Investment manager Fidelity's 'Wealthbuilder Target' funds are an example of a financial product that does this automatically, switching from shares to bonds to cash as a target date approaches. Investment advisers will be able to construct portfolios that achieve the same balance between maximising growth and reducing risk. Some advisers suggest National Savings Index-Linked Certificates for shorter-term investors who want a hedge against rising school fees. These pay tax-free interest equivalent to the inflation rate plus 1%.
Just as the more you can afford to pay out of income, the less you will need in savings, the more savings you can find, the less your income will be savaged. For example, £50,000 of investments, earmarked for cashing in over time to pay for fees, combined with payments from salary starting at £5,000 a year - and increasing in line with fee inflation - should be enough to pay all day fees for a child from the age of five, including university, according to Bestinvest.
For some, a windfall, such as a bonus or inheritance, will provide a convenient lump sum to pay school fees without the hassle of having to save. However, it is also worth considering whether grandparents could help. Contributing to school fees can be tax-efficient for them, Estates worth more than £275,000 at death, including the value of property, are taxed at 40% of the excess. Rather than money being lost in tax, grandparents with spare cash or investments can each pay up to £3,000 of fees a year free of any inheritance tax liability.
Wealthier grandparents might set up a trust for their grandchildren's education. Money put into a trust is wholly tax-free after seven years and any investment growth is also ringfenced from their estate. Property-rich, cash-poor grandparents might consider equity-release loans to help pay fees and at the same time reduce their home's value in order to save on inheritance tax.
Parents themselves can, of course, borrow to pay the fees - and this may be the only option for those who leave their planning late and have no other source of funds. Mortgages are generally the cheapest form of borrowing, and the property boom of the past decade means that many parents will be sitting on hundreds of thousands of pounds of equity. Remortgages are straightforward and can be structured to give a one-off lump sum or to allow borrowers to draw down funds when needed.
So-called offset mortgages, which involve linking a savings account to a home loan, are particularly flexible. In the years before children start school, parents can use an offset scheme to build up savings at the same time as minimising their mortgage interest, then pay out those savings as school fees bills roll in.
Paying down a mortgage early can clear the decks for school fees, freeing up more income for when the bills arrive. It's often a good option for parents looking to build up funds: the effective investment return is both guaranteed and higher than that available on most low-risk alternatives, and the resulting housing equity can always be drawn down later to pay fees.
Families that fall on hard times - for example, if the breadwinning parent loses their job or dies - may be able to draw on schools' hardship funds to keep the child at the school.
But the more your children are dependent on your income - rather than assets - to pay the school fees, the more it is worth considering taking out insurance. Parents who work for big companies may already have life insurance, as well as cover for long-term sickness and a redundancy payment if they lose their job. But they should review whether the cover is adequate.
The self-employed are potentially much more vulnerable and may need to look at life insurance, income protection (also called PHI) and critical illness cover (which pays out a lump sum if you are diagnosed with a serious illness, such as cancer, or have a heart attack).
School fees may seem outlandishly high, but they are at least predictable.
So as a first step in working out how to fund the costs, experts suggest producing a schedule of possible payments, including where children will overlap in education and which years are likely to be the most expensive. This will help dictate the choice of investments or other planning needed to make the fees as manageable as possible.
Of course, such calculations may just serve to highlight how unrealistic parents' private education plans are. The obvious alternative is to find the best possible state school in an education system that families have to pay for anyway through their taxes: state education funding is now £5,000 a child a year.
However, areas with better-performing state schools tend to have higher house prices. That's fine if you already live in one of those neighbourhoods.
But the premium for moving into the catchment area of such a school from the surrounding area could be a third or more on the cost of a property, with the divide most pronounced in London and the south-east.
And that, of course, is not far off the cost of sending at least one child to private school.
BEST-VALUE SCHOOLS SCHOOL EDUCATIONAL ANNUAL FEES RANK Withington Girls School, Manchester 1 £7,110 King Edward VI High School for Girls, Birmingham 4 £7,659 Perse School for Girls, Cambridge 8 £9,900 North London Collegiate School (girls) 8 £10,017 King Edward's School, Birmingham (boys) 15 £7,749 St Catherine's School, Guildford (girls) 15 £10,755 (day), pounds 17,700 (board) Oxford High School (mixed) 18 £7,365 Haberdashers' Aske's School for Girls, Borehamwood 18 £8,970 Nottingham High School for Girls 21 £7,365 The School of St Helen & St Katharine, Abingdon (girls) 21 £8,511 Talbot Heath School, Bournemouth (mixed) 21 £8,700 (day), pounds 14,490 (board) Manchester Grammar School (boys) 29 £7,239 St James Independent School for Girls, London 29 £9,135 Park School for Girls, Ilford 34 £6,756 Loughborough High School (girls) 34 £7,479 Concord College, Shrewsbury (mixed) 41 £9,000 (day), pounds 18,936 (board) Greenfields School, East Sussex (mixed) 46 £9,765 (day), pounds 15,990 (board) Compiled by MT using FT500 Independent Schools survey figures. Schools selected for producing best exam results for relatively inexpensive fees (for independent schools generally or in region; where boarding fees are listed, the school is regarded as good value primarily for boarding). Educational rank figures based on latest A-level results.
SPREADING UNIVERSITY COSTS
One advantage of having to pay school fees, it has been said, is that it does at least get parents used to the costs of supporting their children at university. While debts of up to tens of thousands of pounds are the harsh reality for many students, high-earners are likely to want to cover most of the costs of their child's higher education themselves.
Says Mike Warburton, senior tax partner at Grant Thornton: 'Parents, particularly those who may have already paid a fortune in school fees, don't want to see their children leave university with big debts.'
In fact, families with children moving from private to higher education may be relieved to find the overall financial burden lessens. The National Union of Students (NUS) estimates the average total cost of being a student at £8,800 for this academic year (£10,500 in London) - about £30,000 for the typical three-year course. These figures - which include the costs of living away from home, as well as the course - are considerably less than boarding fees and a similar amount to a day school.
But they are still substantial, and for parents not used to paying for education, sending their children off to university involves a new set of costs. And those costs, notes Matthew Grimes, a director at UBS Wealth Management, also come later in life, at a time when many parents will be looking at their own retirement planning.
Student finance is already far from straightforward, and it is set to change again. From autumn 2006, additional top-up fees of £3,000 will be levied, repayable through the student loans system. Part of the thinking is that students should contribute more towards the cost of their own education when they become high-earning graduates, but in practice high-earning parents are likely to continue to shoulder much of the burden.
As with school fees, advisers are keen to point out that the load can be lessened if parents save in advance. The low-cost student loan system can also be a way of spreading the cost. Students who don't otherwise need the money are often advised to take out their student loans to put into a savings account, because they can make more interest than they will be incurring. But they could also use this money to help support themselves.
During the recent housing boom, some parents did well out of buying a property for their child to live in while at university, renting out the other rooms to fellow students. It is also a way of helping children on to the housing ladder.
The new tax-free Child Trust Fund (CTF) is often talked about as a vehicle for funding future university costs. The initial £250 government voucher (available to children born since September 2002) is unlikely to grow to much on its own, whichever CTF account parents choose. But with the extra £1,200 a year that families can put in, parents could generate a fund of about £40,000 for their child when they turn 18. Of course, higher education costs will probably have risen too by then, but this sum should still fund up to a couple of years of university life, according to Bates Investment Services.
However, parents saving for higher education costs through the CTF should be warned that the child has full access to the money from the age of 18 - and they may have other ideas about how it should be spent.
A LITTLE HELP WITH THE FEES
Eton now charges £23,688 a year for boarding. Day fees at Winchester are a whopping £22,236 per year. But for parents looking at the value end of the independent education sector, some day schools charge nearer £6,000 a year (£5,000 for junior or prep schools) and boarding schools are available from £13,000, according to the Independent Schools Council Information Service (Iscis).
In addition, parents of up to a third of children at independent schools get some non-family help with fees, mainly from the schools themselves. Last year, says Iscis, more than 118,000 pupils benefited from a total of £276 million of fee assistance - an average of £2,300 each.
Scholarships for artistic, musical, sporting or academic talent are normally based on a competitive examination. They vary in value, but can be for as little as 10% of fees and are rarely more than 50%. Schools are also shifting their support towards bursaries, which can be for up to 100% of fees but which are based primarily on financial need. High-income families are unlikely to qualify, although existing pupils may become eligible if the family breadwinner dies or loses their job. Bursaries also often involve a means test.
Some schools offer help in the form of reserved entrance awards for children with parents in the armed forces, the clergy or in teaching, and other financial awards to children of former pupils or those who already have siblings at the school.
New Labour's abolition of the assisted places scheme ended the main source of government help with fees, although armed services personnel and Foreign and Commonwealth Office staff are still offered help from the state as their employer. Some commercial companies, particularly multinationals, also offer financial help to employees for school fees.
Iscis (0870 343 5363, www.isc.co.uk) says the best source of information on help with fees is the schools themselves, although its free regional handbooks give details of available assistance. Comments ISC spokesman Steven King: 'Parents usually make a choice of school first and then look into assistance, not the other way round.'
Schools offering scholarships and bursaries are also listed in the Independent Schools Guide, published annually by Gabbitas, an educational consultancy that advises on school choice. Gabbitas (www.gabbitas.co.uk) also suggests the Educational Grants Directory, published by the Directory of Social Change, for a listing of educational and charitable trusts that may provide help with school fees.