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3 ways to pay school fees upfront and save
Paying in advance may get you a discount, but the saving needs to be worth it.
If you’re looking to save on school fees, you might’ve considered paying the full year’s tuition fees upfront to get a discount. Many schools offer a discount of between 5% and 10% if you pay the full sum in January, and some schools offer additional discounts if you pay one month sooner, in December. This can be very appealing.
Example: you usually pay school fees of either R5,000 a month, or R60,000 a year. Paying upfront at a 10% discount means you’d need only R54,000 – a saving of R6,000.
But having R50,000 or more available on demand is beyond the reach of many parents. It takes thorough planning to get this right.
Here are 3 ways you could save a decent amount of money by paying school fees upfront. We’ll stick to our original example: 1 year’s school fees of R60,000 if paid at R5,000 a month, or 10% discount if paid in full at the start of the school year.
1. If you have the cash available
Depending on your income or your savings habits, you may be among the fortunate few who have R54,000 available immediately. In this case, it obviously makes sense to take the 10% discount of R6,000 and transfer it to your investments and help your money grow faster.
If you have more than one school-going child, a 10% discount is really useful, although the lump sum is also higher. However, the bottom line is that if you can pay the full amount without taking on debt, then this makes sense.
2. Start saving early
It might not be easy for every young family to save, but providing for your children’s education is a strong motivation to get into the habit. Even if you start saving just one year before your child goes to school, you only need to save R54,000 to cover the discounted rate, not the full R60,000.
Your home loan can be a source of more affordable credit if you’ve been paying it off for some time
So, instead of resigning yourself to paying R5,000 a month from next year, you have the incentive to start saving only R4,500 every month this year. When the deadline rolls around to pay your fees upfront, you’ll have the R54,000 on hand. Consider the Electronic 32Day Notice Account, which offers you enough flexibility to manage this strategy every year, and competitive interest rates with no monthly fees or commissions – so you could end up with a bit more than you’ve put in.
Remember, if you invest in any Nedbank notice account, you can also join the Structured Saver rewards programme to help you manage your savings and investments more effectively.
Being able to take care of the first year’s school fees will help motivate you to simply repeat the strategy every year. If you use the same Electronic 32Day Notice Account and withdraw the money you need only once a year, the effects of compound interest over time will help you keep up with school fee increases, without having to change your monthly savings amount too much every year.
3. Use your home loan
Your home loan can be a source of more affordable credit if you’ve been paying it off for some time, especially if you’ve been paying more than the minimum amount. This is considered a cheaper line of credit because home loans offer among the lowest interest rates – usually a few fractions higher or lower than the bank’s prime lending rate.
You have 2 options when using your home loan to pay for your school fees, namely:
(a) Readvance
This lets you access a portion of the debt you’ve already paid off. So, if your loan was for R1 million and you currently owe only R750,000, you could potentially have R250,000 to access.
(b) NedRevolve
This gives you access to any money that you’ve paid over and above your minimum monthly repayments. If you’ve regularly paid some of your annual bonus into your home loan or you paid a bit extra every month, you can transfer this amount from your home loan to your transactional account via Online Banking or the Nedbank Money app, and the money will be available immediately.
Adding R54,000 to your home loan may increase your minimum payments by only a few hundred rand every month, depending on how much you still owe and how long the loan term is. But ‘a few hundred rands’ monthly over 10, 15 or more years really adds up.
To make sure this strategy saves you money, rather increase your monthly home loan payments by the full R4,500 you would’ve been saving for school fees. That will clear the additional R54,000 in a year and reduce the extra interest you’re charged.
