The True Cost Of Private Schools

private school cost

I hope this article will be useful to all the parents and future parents out there who are considering private education for their children.  I am using the UK school system as an example, but the facts below hold for many other countries with a big private school sector (i.e. the US).

I have long wanted to do a post on private schools.  My wife and I spend a lot of time thinking about schooling options for our daughter, who will start elementary school in just a couple of years. 

I have gone through the state school system myself and private education was never an option for me.  Fortunately, I received an undergraduate degree from a solid university and followed that with a top MBA a few years later.  That being said, I still struggle to relate to the nationwide obsession with private schools in the UK. 

It is a topic that I have debated at length in my head many times over.  The argument usually goes as follows.

The Eternal Private School Argument

  • Voice of reason: “If I, a first-generation immigrant, have become successful despite being state school educated and having no real network to begin with, surely my daughter is much better placed to succeed.  Surely she doesn’t need to go to a private school to make it.”
  • Nagging voice of anxiety: “But what if I’m wrong?  Perhaps my success had nothing to do with my ability and everything to do with luck?  Am I sabotaging my daughter’s future by even questioning whether she should attend a private school?”
  • Voice of reason: “Well, if it is truly down to luck then that’s another argument not to go to private school.  After all, there are so many people educated in private schools, with degrees from Oxbridge or Russell Group universities who have the same jobs as state school graduates.”
  • Nagging voice of anxiety: “Well, when my daughter grows up and isn’t able to have the career that she wants I will have to look her in the eyes and explain why I didn’t send her to private school.”

And on and on it goes.  The voices in my head have been having this argument for the better part of the past three years. 

Now that decision time is approaching, I have finally set out to answer three questions in a structured way:

  1. What are the advantages of private schools?
  2. What is the true cost of private schools?
  3. As a function of #1 and #2 above, is private school education worth it?

The reality is, if you are in a position to even contemplate sending your child to a private school here in the UK (or anywhere else), you are already way better off than 99% of the world’s population.

At the same time, private education is likely to be the second-largest expense you will incur in your life (your house being the biggest one). 

Depending on where you live and the number of children you have, it might well be your biggest expense.  Therefore, you need to think long and hard about whether it is the right choice for you.

The Advantages Of Private Schools

To me, this one is a no-brainer.  Most people will agree that private schools have multiple advantages vis-à-vis their state equivalents:

Better facilities:  Private schools often boast nicer buildings with better sports amenities, well-equipped libraries, state of the art media centres and nice auditoriums.

Better teachers:  This is a contentious one and surely there are many fantastic state school teachers out there as well as more than a few mediocre private school teachers. 

Nonetheless, because of their profit motive and a more effective parental feedback loop, on average private schools do benefit from higher calibre teaching talent. 

Smaller classrooms:  Budgetary pressures and difficulties in recruiting teachers (maths is a common one) mean that state school class sizes have been going up.  It’s not unusual for class sizes to exceed 30 or even 35 children.

If you send your child to a private school, there is a very high chance she will be in a much smaller class of 15 or 20 pupils.  This, in turn, means a better teacher/pupil ratio and more attention for your child, leading to better educational outcomes.

More supportive environment:  Somewhat related to the better teacher/pupil ratio and a profit motive, there is a thesis that a private school environment is more conducive to stimulating your child’s unique abilities and helping them address their weaknesses. 

Narrower ability range:  Parents who send their children to private schools tend to select schools that will best fit their children’s profile. 

In theory, this means that academic-focused children end up in academic-focused schools, while children with a predilection for performing arts will end up in a school that better fits their profile.

Teachers can naturally accomplish a lot more in a class where most students have an aptitude and a passion for the subject being taught. 

Better network:  Not having gone to a private school, I wouldn’t know what it feels like.  I also question the durability of the networks you build in primary or secondary school.  However, many Old Etonians and Old Harrovians wax lyrical about the network their schools have given them. 

Admission to better universities:  This is likely one of the most important factors.  According to the Access to Advantage report published by the Sutton Trust, private school students are 7 times more likely to secure a place at Oxford or Cambridge than students at non-selective state schools. 

They are also twice as likely to secure a place at a Russell Group University than their non-selective state school counterparts. 

Better job prospects:  I am heavily involved in recruiting junior investment bankers at my firm.  First-hand experience suggests that the (perceived) quality of an applicant’s undergraduate degree weighs heavily on their chances of getting an interview.  

I would take someone with passion and drive over a lazy Oxbridge graduate any day of the week, but unfortunately, there is a very strong bias towards higher-calibre universities.  Chances are it is just as applicable in other professional services as it is in investment banking. 

I’ve picked the most obvious ones, but the list of advantages doesn’t stop here.  The majority of people seem to coalesce around the opinion that the quality and outcomes of private school education will typically trump that of a state school. 

How Much Do Private Schools Really Cost? 

The cost of private schools is probably the biggest factor that determines whether parents send their children into public vs. private education system.

What is surprising is that this is precisely where most people don’t do their homework properly.  What I mean by that is that most parents simply focus on the headline prices and don’t take into account three other important factors:

  1. Price increases over time (which have historically exceeded inflation)
  2. Ancillary fees (school trips, uniforms, sports clubs, etc.)
  3. Most importantly, the opportunity cost

Let’s address these items in turn.

The table below shows the evolution of private school fees assuming you were to place your child into a private school today.  The average private school fees now exceed £17,000 per year

In addition, you can easily budget around 20% of the headline fee to accommodate for the ancillary items I have listed above.  Funny how much more expensive that white t-shirt becomes once you put your school’s logo on it!

In total, this brings your total annual fee to c.£20,400 in year 1.

Unhelpfully, you can pretty much count on school fees growing well ahead of inflation every year (wouldn’t it be nice if your pay did the same, unprompted?)

By the time your not-so-little one heads off to university in 14 years, you can expect to have shelled out almost £34,000 in school fees in that last year.

Evolution of Private School Fees

private school cost over time

Once you tally everything up, you will have spent about £373k on school fees over the 14 years.  

This covers off item #1 and #2 above.  However, it is the opportunity cost point that is most important and can lead to some really sobering conclusions. 

The Opportunity Cost of Private Schools

Let’s imagine for a moment that instead of handing your hard-earned money to the headmistress every year, you invested it instead. 

Assuming a 7% return in the stock markets, the £373k would grow to about £616k by the time your child has graduated school. 

Of course, giving your child over half a million pounds when they turn 18 is rarely a good idea.  Let’s say you were to leave that money invested until your daughter turns 22.    

If you left the money invested for another 4 years, the £616k would increase to £807k. 

22-year olds are generally better with money than 18-year olds, but the difference is usually marginal.  The lack of judgement is still there to an extent – after all, there is a reason why even Zipcar requires its drivers to be 23 years old. 

So what if you wanted your child to get a taste for real life and work for a few years while the money continues growing in that investment account? 

To the extent you really wanted to test your progeny’s patience and left the pot untouched until your child turns 30, it would grow to £1.4m.  Leave it there until they turn 40 and the number becomes £2.7m. 

That’s right, £2.7m. 

Private School Fees, Reinvested

private school fees reinvested

At this point in time, your child is 40 and has had an ample taste of real life.  He or she is hopefully now settled down and has a family.  Imagine how far £2.7m could go to improving their quality of life?

Yes, £2.7m in 35 years isn’t what it is today.  But even post inflation at 2% per year, it represents £1.4m in today’s money. 

The best part, of course, is that your child is much more likely to appreciate the money and put it to good use.  And if they don’t appreciate the chart below at 40, it is unlikely they ever would.

private school fees reinvested 2

Are Private Schools Worth The Cost?

There are some fundamental assumptions underpinning the analysis above:

  1. You will put aside and invest the equivalent of private school fees every year (as opposed to spending that money elsewhere)
  2. If you end up sending your kids to a state school, you will not take a less demanding (and as a result, lower-paid) job so that you can make sure your child is on track academically
  3. The money for private school fees comes from you and not your parents/family/ bursaries (i.e. money that you will not receive unless your child is in a private school to begin with)

Even taking these factors into account, the private school opportunity cost is astounding.  Sending your child to a private school is a personal decision for everyone and I can certainly think of several scenarios where the private school cost is worth bearing:

  1. When you truly have excess money
  2. If you simply want to outsource your child’s education and are happy to pay the cost
  3. When state schools in your area just aren’t good enough (and you cannot move)
  4. In a situation where a state school just won’t do for your child (i.e. if he or she has a learning disability, a stutter, is extremely shy, etc.)
  5. When your child has a truly special talent that will wither in state school
  6. If you don’t think you will do a good job compensating for the shortfalls in the state school education

But before you take the plunge, please make sure you understand the financial consequences and the alternatives.  When it comes to one of the biggest expenses you will incur in your life, it is worth every ounce of effort.

About Banker On FIRE

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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker.  I am passionate about capital markets, behavioural economics, financial independence and living the best life possible.

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4 Comments

  1. In our case we’ve spent around $70k per year on private school tuition alone in Singapore and cut this to close to $0 by switching to public school in Switzerland. The accumulated opportunity cost delta is at around $3mio for the whole schooling time including college. Beware of this one!!!

    • It’s a bit of a shocker really. Unfortunately, there is just so much societal pressure and parental guilt around the topic of private schools here in the UK.

      Many people (who are privately educated themselves) don’t realize that private schools are now firmly out of reach of the middle class. As a result, they blow up their financial well-being to send their kids to private schools as well. That, by the way, puts a ton of pressure on the kids who see the sacrifices their parents made and feel compelled to take up high-paying (but less rewarding) jobs to justify the expense… the cycle doesn’t end.

  2. Interesting article. However, a major omission in your calculation is the tax bill your child would have to pay when she gets the funds from you – gift or inheritance taxes. How would that affect your conclusion? Interested in your thoughts.
    Certainly tough for all those parents who don’t have the excess money and are trying to do what’s best for their children while not knowing what the future holds in terms of demand for professions.

    • Great point. My view is that with sufficient planning, it’s possible to significantly reduce the inheritance tax bill, at least here in the UK.

      First, there’s the IHT exemption of c.£475k/person, which means a couple can pass on c.£950k free of inheritance tax.
      Then there’s the ability to make IHT-free gifts, provided you survive for 7 years after making the gift.
      Finally, there’s the opportunity to shelter some of the money by using a Junior ISA and contributing to a pension for your children (though I don’t like either idea for various reasons).

      There may be some tax left to pay on the residual chunk of money but it sure won’t be the 40% headline rate. And given the amounts of money we are talking about here, that’s still a serious chunk of change you are passing on to your children.

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