For many Australian families, private school fees are the largest expense after the mortgage. Over 13 years of schooling, the total cost for a single child can run well into six figures, and for families with two or three children, it can rival the cost of the family home.
Most families pay for school out of their weekly cash flow and hope it works out. Those who plan ahead, even by a few years, have far more choice: they pay less tax on the money set aside, they avoid putting pressure on their mortgage or retirement savings, and they can make decisions about schooling based on what suits their child rather than what they can afford that term.
This guide explains how much private schooling really costs, the main ways Australian families fund it, how each option is taxed, and how to fit school fees into a broader financial plan.
School fee funding options at a glance
| Pay from cash flow | Savings in a mortgage offset | Investments in a parent’s name | Investment bond | Family trust | |
|---|---|---|---|---|---|
| How earnings are taxed | Not applicable, fees come from after-tax income | No tax, the benefit is interest saved | At the owner’s marginal rate | Up to 30% within the bond, tax paid after 10 years | At beneficiaries’ rates, with minors taxed at penalty rates |
| Access to funds | Not applicable | Immediate | Generally within days | Any time, but tax applies within 10 years | At the trustee’s discretion |
| Growth potential | None | Limited to the home loan rate | Depends on investments | Depends on investments | Depends on investments |
| Complexity | Low | Low | Low to moderate | Moderate | High, with setup and annual costs |
| Typically suits | High, stable incomes, or short horizons | Families with a home loan | Where one parent has a low tax rate | Both parents on high tax rates, 10+ year horizon | Families with existing trusts or business income |
Most families end up using a combination. The right mix depends on how far away the fees are, your tax rates, whether you have a mortgage, and how much flexibility you need.
How much does private school really cost?
Private school fees in Australia vary enormously. Many Catholic and low-fee independent schools charge a few thousand dollars a year. Leading independent schools in capital cities can charge $30,000 or more a year in the senior years, before uniforms, camps, technology, music, sport and excursions are added.
Two features of school costs catch families out:
Fees rise faster than general inflation. School fees have historically increased faster than the Consumer Price Index, partly because teacher salaries make up most of a school’s costs. A fee that looks manageable for a child starting school may look very different by Year 12. Our guide to cost of living and inflation in Australia explains why rising costs need to be built into any long-term plan.
Fees are paid from after-tax income. School fees are not tax deductible. For a parent on the 37% marginal tax rate, paying $40,000 in fees requires around $65,600 of pre-tax salary, once the Medicare levy is included.
An illustration
Suppose a family expects secondary school fees of $25,000 a year in today’s dollars, and fees rise by 4% a year. For a child born today:
- Year 7 fees, 12 years from now, would be around $40,000.
- Year 12 fees would be around $48,700.
- The total for six years of secondary school would be about $265,000.
Assuming savings earn 6% a year after tax and fees, the family would need to save roughly $1,100 a month from birth until Year 7 to fully fund secondary school in advance. If they started when the child was five, the figure would be roughly $2,200 a month. Every year of delay increases the monthly amount needed, and leaves less time for investment growth to do the work.
These figures are illustrative only and based on simplified assumptions. Actual fees, inflation and returns will differ, and investment returns are not guaranteed.
Strategy 1: Fund fees from cash flow
For families with high, stable incomes, paying fees directly from income can work, especially if the fees are only a few years away. The key is treating school fees as a fixed commitment in the household budget, not something to be found each term.
Practical steps include setting aside a fixed amount each pay into a dedicated account for school costs, budgeting for the extras as well as tuition, and checking that the plan still works if one parent’s income falls through illness, redundancy or parental leave. Our guide on how to structure your cash flow sets out a framework for doing this.
The risk with relying entirely on cash flow is that school fees peak at the same time as other costs: a larger home, a teenager’s expenses, and the years when you should be building super for your own retirement.
Strategy 2: Use your mortgage offset account
For families with a home loan, money held in an offset account saves interest at the home loan rate. That saving is effectively a tax-free, guaranteed return, which is hard to beat for money needed in the next few years.
Building up an offset balance in the years before school fees start, then drawing on it as fees fall due, keeps the money accessible while reducing interest costs in the meantime. It is particularly suitable for fees due within five years, where investing in growth assets carries more risk.
Avoid redrawing on your home loan or extending it to pay fees unless that has been planned. Interest on borrowing used for school fees is not tax deductible, and spreading school costs over a 30-year mortgage can make them far more expensive than they appear.
Strategy 3: Invest in the lower-earning parent’s name
Where one parent earns significantly less, for example while working part time or on parental leave, holding investments in their name can mean investment income is taxed at a lower rate. Over 10 years or more, the difference can be substantial.
There are trade-offs. The investments legally belong to that parent, which matters if the relationship ends. The lower-earning parent may return to full-time work and a higher tax rate before the money is needed. And from 1 July 2027, legislated changes replace the 50% CGT discount for individuals with cost base indexation and a minimum 30% tax rate on capital gains, which reduces the benefit of holding growth assets in a low-income name for gains made after that date.
Our guide on aligning your investments and super with your tax strategy covers how ownership decisions affect the after-tax result.
Strategy 4: Investment bonds
Investment bonds, sometimes marketed as education bonds, are a popular way to save for school fees. They are life insurance policies that hold investments in a range of options, from cash to shares.
Earnings are taxed within the bond at up to 30%, so the investor does not pay tax on them personally each year. If the bond is held for 10 years and contributions in each year do not exceed 125% of the previous year’s contribution, withdrawals are tax free in the investor’s hands.
Investment bonds can suit families where both parents are on marginal tax rates above 30%, and where there is a long time until the fees are needed. Starting a bond when a child is born means it reaches the 10-year mark just before secondary school.
They are less suitable for shorter timeframes. Withdrawals within 10 years are taxable, although a tax offset is available for the tax already paid inside the bond. They are also less effective for parents on lower tax rates, who might pay less tax holding investments directly.
Strategy 5: Avoid investing in the child’s name
It can seem logical to invest in a child’s name, since children have their own tax-free threshold as adults. But for children under 18, unearned income, such as interest, dividends and distributions, is taxed at penalty rates. Only the first $416 a year is tax free. Above $1,307, the entire amount is taxed at 45%.
For that reason, investing directly in a child’s name rarely makes sense for school fee planning. Accounts held by a parent in trust for the child are also generally taxed at the parent’s rate if the parent provided the money and controls it.
Strategy 6: Family trusts and testamentary trusts
For families with an existing family trust, often established for a business or investment portfolio, the trustee can distribute income to adult beneficiaries on lower tax rates. Distributions to minors are taxed at the same penalty rates as other unearned income, so a family trust is not a way to use children’s tax-free thresholds.
Testamentary trusts work differently. Income distributed to children under 18 from a testamentary trust created by a will is generally taxed at ordinary adult rates, including the tax-free threshold. That makes them a highly effective vehicle for funding education, and it is why grandparents who want to help with their grandchildren’s schooling often consider them as part of their estate planning. Our guide on testamentary versus family trusts explains the differences.
When grandparents want to help
Many grandparents want to contribute to their grandchildren’s education. There are several ways to do it:
- Paying fees directly to the school, which is simple and keeps the money focused on education.
- Gifting money to the parents, who then invest or pay fees as they see fit.
- Setting up an investment, such as an investment bond, in the grandparent’s own name and nominating a grandchild or parent as beneficiary.
- Through their will, for example by establishing a testamentary trust for education.
Australia has no gift tax, but gifts can affect a grandparent’s Age Pension or other Centrelink entitlements if they exceed the gifting limits. Grandparents also need to make sure they are not compromising their own retirement or aged care needs. Our guide to the estate planning strategy most Australian families overlook covers options for passing wealth to the next generation.
Should you prepay school fees?
Some schools offer a discount for paying a full year, or several years, in advance. Whether that is worthwhile depends on the discount compared with what the money could otherwise earn after tax.
A prepayment discount is effectively a tax-free return, so a 4% discount on a year’s fees can compare well with leaving money in savings. But there are risks. If your child changes schools, the refund terms may be limited. If the school experiences financial difficulty, prepaid fees may be at risk. Read the terms carefully, and avoid prepaying many years in advance with money you might need.
Other ways to reduce the cost
- Private school for secondary only. Many families use government or low-fee schools for primary years and focus their budget on secondary school, roughly halving the total cost.
- Scholarships and bursaries. Many independent schools offer academic, music, sporting and needs-based scholarships, which are worth investigating early.
- Sibling discounts. Many schools reduce fees for second and subsequent children.
- Payment plans. Spreading fees across monthly instalments can smooth cash flow, although it is worth checking for any surcharge.
Don’t sacrifice your retirement
The most common planning mistake is funding school fees at the expense of retirement savings. The years when school fees peak, usually in parents’ 40s and 50s, are also the years when extra super contributions are most valuable.
Children can borrow for university through HECS. Parents cannot borrow for their retirement. A sound plan sets aside money for school fees without stopping contributions to super, or at least makes a deliberate decision about the trade-off. Our guides on balancing short-term goals with long-term financial security and financial planning in your 30s, 40s and 50s cover how to weigh these priorities.
It is equally important to protect the plan against the unexpected. Life, total and permanent disability, and income protection insurance can ensure fees can still be paid if a parent dies or cannot work.
Special situations
Separation and divorce. School fees are often a significant issue in property settlements and child support arrangements. Agreeing in writing how fees will be paid, and by whom, avoids disputes later. Our guide to financial planning after a major life change covers the financial side of separation.
Single parents. Funding private school on one income requires careful cash flow management and insurance. Our guide to financial planning for single parents covers the priorities.
Receiving an inheritance or windfall. A lump sum can be used to pre-fund fees, but how it is invested and held matters. Our guide to financial planning for a windfall explains the options.
Where professional advice adds value
School fees are a long-term financial commitment that interacts with your mortgage, tax position, super, insurance and estate plan. Choosing the right funding structure early can save tens of thousands of dollars in tax over the life of the plan, and reduce the risk of fees putting pressure on the rest of your finances.
A financial planner can work out how much you need to set aside, which structures suit your tax position and timeframe, and how to balance education costs with retirement savings and other goals. As circumstances change, with a new child, a career change or a move between schools, the plan can be adjusted. You can see what that looks like in our guide to a well-structured financial plan in practice.
If you would like help planning for your children’s education, our financial planning team in Adelaide can help you build a strategy that fits your family. If you are new to advice, our guide to what happens in your first meeting with a financial planner explains what to expect.
Frequently asked questions
How much does private school cost in Australia?
It varies widely. Many Catholic and low-fee independent schools charge a few thousand dollars a year, while leading independent schools in capital cities can charge $30,000 or more a year in the senior years, plus extras such as uniforms, camps, technology and activities. Fees have historically risen faster than general inflation.
When should we start saving for private school fees?
As early as possible. Starting at birth gives the longest time for investment growth and, for investment bonds, means the 10-year tax-paid period ends before secondary school. Starting later is still worthwhile, but the amount needed each month rises significantly with each year of delay.
Are private school fees tax deductible in Australia?
No. School fees are a private expense and cannot be claimed as a tax deduction. Salary packaging school fees is generally not effective because of fringe benefits tax. This is why choosing a tax-effective way to save for fees in advance matters.
Are investment bonds good for saving for school fees?
They can be, particularly for parents on marginal tax rates above 30% with a 10-year or longer timeframe. Earnings are taxed within the bond at up to 30%, and withdrawals after 10 years are tax free if the 125% contribution rule is followed. For shorter timeframes or lower tax rates, other options may be more effective.
Should we invest in our child’s name?
Usually not. Children under 18 are taxed at penalty rates on unearned income such as interest and dividends. Only the first $416 a year is tax free, and above $1,307 the entire amount is taxed at 45%. Holding investments in a parent’s name or another structure is generally more effective.
Is it worth prepaying school fees?
It can be if the school offers a meaningful discount, because the discount is effectively a tax-free return. However, check the refund terms if your child changes schools, and consider the risk of prepaying many years in advance if the school experiences financial difficulty.
Can grandparents help pay school fees?
Yes. Grandparents can pay fees directly, gift money to the parents, invest on behalf of grandchildren, or provide for education through their will, for example using a testamentary trust. There is no gift tax in Australia, but gifts above the Centrelink limits can affect a grandparent’s Age Pension.
General advice warning. This article contains general information only and does not take into account your objectives, financial situation or needs. Tax rules, including the legislated changes to capital gains tax from 1 July 2027, and product features are subject to change. Examples are illustrative only and based on simplified assumptions. Investment returns are not guaranteed. You should consider whether the information is appropriate for you, read any relevant product disclosure statement, and seek personal financial and taxation advice before acting on any of it. Money Path Pty Ltd is a Corporate Authorised Representative (No. 001306822) of Australia National Investment Group, AFSL 522028.
