The cost of private education – how to plan for it

The need for structured education of a higher quality has driven a historic rise in private school enrolments. Most parents would love to have their children receive the individual attention and access to resources that private schooling offers.

However, with the cost of education rising above inflation, a situation worsened by the advent of Covid, relatively few South Africans are privileged enough to afford it.

We outline the fees at some of the more prominent private institutions, and consider investment vehicles you can use to save towards these.

Private schooling fees

The table below indicates boarding- and day fees at a range of private high schools throughout the country. Most cost well over R100,000 per child per year – an enormous expense, particularly for households with multiple children.

Boarding and day fees 

Save and invest

Needless to say, fees like these are unlikely to be to hand. However, with some long-term financial planning, they may be within your reach.

Thami Bokwa, regional general manager at PPS Financial Advisory, advises that you begin saving immediately.

“The best way to save for your child’s education is simply to start. Don’t postpone this - your future self will thank you for it.

“Start with whatever you can afford,” Bokwa says, “and make sure that your contributions escalate each year with inflation. The sooner you do this, the more compound interest you’ll earn on your investment, which means you’ll earn interest on interest.

“This will provide peace of mind and develop great savings habits in the process,” he says.

How can I save?

Bokwa notes that there are various investment routes you can explore. You need to weigh up the pros and cons of each.

A tax-free savings account. If you don’t have a tax-free savings account, an option would be to open one to save for your child’s education. This savings vehicle allows you to save up to R500,000 over your lifetime without attracting taxes on the proceeds.

Bokwa warns against creating a tax-free savings account in your child’s name, as this will count towards their lifetime threshold.

“You don’t want them to have reached their tax-free limit by the time they start working,” he explains.

Collective investment scheme (CIS), known as unit trusts. Bokwa explains that a unit trust pools money and invests in shares, bonds, money market instruments and other investments.  He says the pool is then divided into equal portions called units.

“You’ll be liable for tax on the income generated from the investment at your marginal tax rate,” he cautions.  

Other taxes include dividend withholding tax and capital gains tax on redemption. You have access to the funds at any time, so they do offer great flexibility.

An endowment.  Many financial institutions offer education policies. Generally, these are endowment plans or unit trust-based investments, Bokwa says.

“When investing in an endowment plan, you’re committing to remain invested for a set period, after which your investment is paid out as a lump sum.

“An endowment is not taxed in your hands – all taxes are payable and levied within the investment at 30%, which means that all of your tax considerations are automatically dealt with.

“If your personal tax is higher than 30%, it could be a beneficial route for you,” he adds.

Paying extra into your bond. Many people grapple with the option of paying extra into their bond, which reduces their bond balance and saves on the interest they’re paying to the bank.

Bokwa says that if this is the route you’re considering, you need to speak to your bank about having an access- or flexi bond that allows you to withdraw the funds.

“You’d need to consider that you might withdraw these funds much later in life and the interest rates might not be favourable, which can have a negative effect. You could be nearer to retirement, and taking money from your bond may not be part of your retirement plan.”

Bokwa says there are numerous factors to consider with this route, and speaking to a tax specialist will provide some clarity. 

“The growth of your investment is ultimately determined by the underlying portfolio that you select,” he says. “South Africa has more than 2,000 funds available. A financial adviser can help you choose the appropriate vehicle to meet your long-term objectives,” he explains.

Investing in your child’s future can be costly, but with good financial planning, you can ensure they’re ready for the road that lies ahead.