Paying independent school fees is a major issue for parents, of whom up to 80% pay from their current income, rather than from savings. This is a major strain on household finances and in response, several companies now offer parents and schools a direct debit system as a way of spreading the financial burden more evenly throughout the school year.
Currently only 50% of independent schools accept direct debit payment of fees and only 10% of parents use this payment mechanism. This has led to intense competition in the sector as providers try to build the market by getting more schools to accept direct debit payments and then by targeting the 90% of parents who use other payment systems. The three best-known providers of direct debit payment services are SFIA, Holmwoods Termtime Collections and The Fees Company.
- SFIA is an independent, full-service financial planning company, specialising in school fees since 1952. They offer a direct debit product to parents, although the majority of their work is developing longer-term financial strategies for families
- Holmwood’s turnover is about £125m they are owned by HSBC and Premium Credit Ltd (a subsidiary of MBNA) and have recently appointed a new CEO with a view to doubling their profits within the next three years. HTC have relationships with about 25% of independent schools and charge parents 2.6% to pay by direct debit
- The Fees Company, based in Scotland, have the Bank of Scotland as their funding partner. They are a small specialist firm who offer schools several direct debit options. These include a standard direct debit package that costs parents an additional 1.5%. In addition, they offer schools an outsourcing service for direct debit payments as well as a service which manages all aspects of school fee collections.
While the direct debit market is set to expand, companies who offer only this service, like Holmwoods, may be at a significant disadvantage to more broadly based financial advisory firms like SFIA. SFIA have also been smart with their marketing, partnering with The Daily Telegraph to provide a school fees planning service. It will be difficult for firms to build market share based on price competition, as their fees are already low (1.5%-2.6%) when compared to similar offerings overseas.
In Australia, where almost 40% of students attend independent schools, the largest specialist finance company is The Australian Scholarship Group. They offer direct debit payments via their subsidiary SchoolPlan, with costs starting at 3.95% and going up to a whopping 5.95% - although this does include accident insurance cover.
At the other end of the scale, parents who are flush with funds can take advantage of what independent schools quaintly call ‘Composition Plans’. These are nothing more than discount schemes for paying in advance. How parents choose to pay independent school fees will be an interesting market to watch.
80% of parents paying for private education do so from their income rather than savings.
