Sent: 13-02-2013 09:14:02
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Private School Fees
Since unsustainable trends must eventually stop, the current private school pricing model is on a path to fail.
At the beginning of each calendar year, news sources ritually report on the rising cost of private school educations. According to the Australian Bureau of Statistics, secondary school fees have risen by the equivalent of 7% a year since 2000.
At this rate of ascent, a parent with a six year old today would have to be setting aside more than $40,000 in a single year for a son or daughter to get his year 12 education at one of the nation's upper end schools.
This represents such a large potential demand on incomes as to throw into doubt whether private schools can survive in their present form.
The rationale for a private education varies between the philosophical and religious, on the one hand, and outright avarice. For some parents, a choice of school was intended to give their offspring the edge in getting access to university. Many of the more expensive schools were thought to offer a leg up on the competition before university where a more level playing field was likely to be encountered.
When university was overwhelmingly government funded, secondary school was where a wealthy parent could achieve a tactical advantage for their offspring. However much a parent were going to spend on the education of their children, it made good sense to spend a disproportionate amount on secondary education.
The educational landscape has since changed radically. Today, everyone incurs a financial liability of some sort in attending university. Some exit university with a debt; some have had to pay fees along the way. The quality of a university education is now unambiguously linked to ability to pay or, at least, to incur debt.
At the margin, receiving a law degree from one of Australia's more prestigious universities depends less on the choice of secondary school than it used to and more on having sufficient financial resources to buy a seat in the lecture hall.
Today's generation of parents are confronted, consequently, with an important choice in the allocation of lifelong educational budgets for their children. The question they must ask in making a judgment about the disbursement of funds is whether their children are going to be better off having the money spent on school education or set aside for university education in later years.
This is a relatively new choice which inflationary pressures are making more acute every year.
Parents who have come through a private school system may remain inclined toward applying the same model for their own children. The decision on educational spending will not be purely financial, at least in principle. The practical reality, when the magnitude of the problem becomes more obvious, might differ.
At the rate of price increase for secondary education experienced over the past 12 years, a parent with a six year old today planning his or her future finances would have to budget on today's $20,000 senior secondary school fee being around $85,000 more expensive over five years when the time comes to actually paying it.
Of course, this could be equivalent to some $160-170,000 of pre-tax income. If there was more than one child involved, the additional amount to be budgeted would be a multiple of this.
What are the chances, then, of a young executive, for example, with three children and currently earning $150,000 having an additional $500,000 in income when the time comes to pay the fees in the future?
An executive on an upward career trajectory might manage to meet the challenge but the required 9% a year salary increase, after taking account of the impact of general inflation, will not come easily even for the most upwardly mobile.
For those who aspired to have their children educated at a high quality private school and had to battle through two jobs, for example, the underlying inflation factor will push them out of the game. They will be lost as customers.
This outcome does not take account of any need to acquire a larger mortgage to accommodate a larger family or the possibility, over the next dozen years, that interest rates will rise imposing an additional debt servicing burden on any borrower.
Parents who began their professional lives with an outstanding university debt could have a different perspective on the choice than parents in earlier years who made their way through university financially relatively unscathed.
For these more recently graduated parents the allocation of funds to payment of their own educational debts, mortgages, school fees and the possibility of university fees for their children is likely to be informed by judgments about the relative contribution of school and university in their own salary outcomes.
If schooling is not seen as giving a clear advantage, they will be increasingly reticent to meet the ever rising demand of the private schools for a higher proportion of parental income.
Private schools will be challenged to show a meaningful contribution or risk a consumer backlash. Recent occasional examples of private schools failing financially may become more commonplace occurrences if the inexorable demand for a larger slice of parents' incomes is not matched by an equal increase in service delivery. Even then, the demand on a limited pool of educational dollars might be too much to bear.
Private schools will have to come to grips with the idea that they are going to be in cutthroat competition for a limited pool of personal lifetime education funds not just with the myriad demands made on family budgets but increasingly with tertiary institutions as well.
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