ALMOST half of parents facing school fees bills in the autumn are worried about how they will meet them, after five rises in interest rates. And bursars are reporting a surge in mums and dads knocking on their doors with financial difficulties.
Their struggles are likely to worsen as the credit crunch deepens. Many families expecting rich pickings from maturing employee sharesave schemes may be deeply disappointed with maturity payouts following the recent meltdown in the share prices of some sectors. Those relying on bonuses may also used left embarrassed. If economic conditions deteriorate further, overtime and commission earnings could also be hit.
Yet the number of pupils being privately educated continues to rise, reaching an all-time record this year of 620,000 - 7% of the school population. But it is a decision which costs parents dearly.
School fees typically rise at twice the rate of inflation, increasing by 41% over the past five years. Costs depend on the age of the child and the location and type of school, but fees currently average £2,707 per term at day schools or £6,712 at boarding schools.
So how do parents afford it? Not by following conventional wisdom and planning ahead. Four out of five parents pay fees out of income, according to research from Mtm Consulting and Holmwoods Termtime Collections, a company that helps parents spread school fee payments.
But it is a strategy which leaves many family finances at breaking point. Most cut back on holidays, spending on their homes, new cars and pension contributions, the report claims.
Sometimes even this isn't enough. Four out of 10 parents are not confident that they will be able to meet future bills for school fees and may have to consider withdrawing their children from private education, according to the research.
Crippling tax bills were blamed by 57% of the families questioned for a deterioration in their finances, while half feared that losing their job might force them to remove their children from the independent sector. Four out of 10 parents said rising interest rates were causing problems.
One in six parents returns to work, takes on an extra job or works overtime. Yet only one in 10 claims to have extended the mortgage, although borrowers climb to 15% for fees of more than £15,000 a year.
Another 12% have taken on non-mortgage debts, mainly loans from relatives or banks, or big credit card balances. But with no let-up in soaring fees and new pressures on independent schools' charitable status, how will new parents cope?
Anna Bowes of AWD Chase de Vere, the financial adviser, calculates that the secondary school fees for a baby born today will start at £16,260 a year and that paying for just one child through senior school will cost £136,068.
"It is essential to start saving at the earliest opportunity, but people don't," says Bowes. "It can be very cruel to take a child out of a good independent school because the money has run out and put them into the only comprehensive that will take them at that stage."
She calculates that if you can afford £500 monthly once your child begins senior school, you need to begin saving £414 monthly as soon as they are born.
"This will produce £76,400 which is what you will need to meet the bills combined with the income this will generate."
Cutting the cost
Get the most from the state system; few schools can do much harm in their infant or early primary classes. Or consider moving house to be near a good state school. This can add anything up to £30,000 to the price tag but could outweigh the cost of school fees in the long run.
If you decide to go down the independent route, investigate scholarships and bursaries thoroughly. These are becoming much more widely available.
Scholarships are awarded for academic, sporting or musical talent. However, bursaries are means-tested, so only families on very modest incomes are likely to qualify. Some schools offer attractive discounts if you pay fees in advance; they may also cut the cost for a second or third child. Sarah Windsor-Lewis of Punter Southall Financial Management suggests that parents shop around and barter hard.
"Draw up a list of say 15 schools which would be your first choice and then see which one gives you the best terms," she says. "Explore all avenues for cutting the cost. Barter hard. It is surprising how their final terms will differ."
Biting the bullet
Apart from that there is no magic bullet for finding the cash, according to Andy Cowan of Towry Law, the financial adviser, apart from taking the pruning shears to all your money matters.
"We start by looking at a family's existing financial commitments," he says. "Our first job is to cut all current out-goings to the bone."
If you do have some spare cash, paying off the mortgage rather than saving can be the best move, particularly for higher-rate taxpayers. If you are paying around 6% for a mortgage, making overpayments produces an effective annual return of 11% for a higher-rate taxpayer.
For parents who are nervous about locking money away, an offset mortgage may be the answer, although these loans typically charge a premium of about 0.25 of a percentage point. However, your salary and any available savings can reduce your mortgage costs without any loss of access to your cash.
Savings
Most advisers steer clients away from packaged "school fees" investments. Cowan says: "There is no such thing. They are simply investments branded in a particular way."
It is vital to make the most of tax breaks such as
Isas. Children have their own personal tax allowances but can earn only £100 interest from money given to them by each parent tax-free, so gifts from grandparents are more tax-efficient.
You should always time the cashing-in of longer term investments to make use of your annual capital gains tax allowances. And don't forget National Savings & Investments' tax-free savings certificates.
If you have access to an employer sharesave scheme, the exercise prices set for new schemes over the next few months are likely to be low. You should maximise your exposure, because in five or seven years' time these shares should have blossomed.
Finally, don't forget pensions. With older parents, higher-rate taxpayers could maximise tax relief by making additional pension contributions. They can immediately withdraw 25% as a tax-free lump sum if they are over 50, although this rises to 55 in 2010.
Borrowing
Advisers strongly caution against getting into debt to meet school fees.
However, some parents will borrow, in which case your mortgage is probably your cheapest avenue to cash.
Cowan suggests parents steer clear of branded school fees loans: "These are usually more expensive."
But he also advises parents be cautious about personal loans. "The rates you see advertised are rarely the ones customers can get as applications are individually credit rated. I've never seen a personal loan cheaper than what we can raise on a mortgage."
Taking a punt
One way to make your money go as far as possible is to keep an eye open for investment opportunities, which can be plentiful when markets are in turmoil. But this is a high-risk strategy, so you must take independent advice.
Banks shares have tumbled, but the big institutions are unlikely to go bust. Over time they will recover.
Similarly, some housebuilders and other property related companies are suffering. But as with the banks, only buy top quality at knockdown prices. Some oil companies too have seen their share stagnate, but in the longer term they too should thrive.
Know your enemy. Keep an eye on your competitors' share prices. You'll know better than most when the stock prices of other firms in your employer's sector are looking undervalued.
Cashing in on the pound's strength could be another earner, perhaps by buying dollars. But you will need to time your exit carefully.
Next year buy-to-let could look a steal as stretched landlords dump houses and flats and repossessions appear. University towns are likely to remain safe bets.
