Planning for the cost of education for your kids

It’s not realistic to put a dollar sign on the cost of your child’s or grandchild’s future. But calculating the cost of education can help you draw a close enough estimate particularly in relation to the type of schooling you want to be able to afford them.

If you’re considering private school options, school fees are a major cost and have trended faster than the rate of inflation. Additionally, there’s uniforms, textbooks, extra-curricular activities and trips – that also need to be factored throughout the 13-year school journey. It’s also worth considering how the costs compare across school sectors if you are in two minds about school type.

Total estimated calculated cost over 13 years of schooling for a child starting school in 2021 Region School type & Cost of schooling

Major Cities

Government $81,823

Catholic $140,433

Independent $340,882

Regional/Remote

Government $66,603

Catholic $107,678

Independent $140,197

It doesn’t stop there though. Post-secondary pathways could see your child or grandchild consider a slew of avenues ranging from University through to vocational training where course duration and costs vary depending on course type. Although the HECS-HELP study assistance loan is an option to delay payment of the core course fees, consideration to short-term study expenses such as textbooks and possible accommodation relocation requirements need to be given. There’s also the long-term impact HECS- HELP debt could have on your child or grandchild pursuing future goals and life events such as home ownership.

It sounds overwhelming and probably is, given that it might not be something that you’re even considering but planning and building a strategy to help you fund the costs and adequately cater for in your cashflow and budget.

Know your options

An obvious bit of advice is to do your due diligence and weigh up the benefits and downsides of various strategies.

Investing in a child’s name is generally not a sensible option – as any income (over $416) will be heavily taxed.

Another common strategy is to establish a share portfolio or savings account, with a parent acting ‘as trustee for’ their child. Interest/dividend income earned though is generally required to be declared in the name of the adult taxpayer, and when the time comes to accessing the investment for the educational purposes it was intended to serve, capital gains tax can represent a significant financial cost.

An often-over-looked option is the structure of an education bond. Designed to facilitate the entirety of an individual’s educational journey, education bonds can be contributed to by anyone and are taxed internally at the company tax rate of 30%.

Education Bonds: tax - effective product to fund education costs

A type of investment bond that if acquired through a friendly society or life insurer is classed as a ‘scholarship plan’ under Australian tax law. It enables the provider to receive a tax deduction for certain educational expenses, which the bond owner will receive in the form of a rebate when withdrawals are made to cover education costs.

Additionally, the capital invested is not locked in for educational purposes only. If circumstances change and other needs arise, funds are accessible for any purpose at any time, and control over how and where the money is invested is retained until it is withdrawn. Another feature is the estate planning benefits – the nature of the structure requires a beneficiary to be nominated, and in the event that the bond owner passes away, benefits can still be maintained via bond guardian.

Achieving peace of mind

Educational expenditure isn’t generally regarded as an activity that can be managed in a tax-effective manner, but it can be done and can allow you to re-allocate capital to other priorities is added bonus.

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The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.