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Private Schools Making Parents Literally Bankrupt; Is It Worth It?

Private schools are chasing parents for thousands in unpaid school fees. Methodist Ladies College has bankrupted one parent that owed $6500 in fees. In the past two years, Methodist Ladies College has initiated bankruptcy proceedings against nine families and bankrupted seven more. Elite Melbourne private schools have initiated bankruptcy proceedings against 24 families in the past 2 years.

All of this activity begs the question: Is a $20,000 per year school really worth it?

If you were to invest that $20,000 over the 6 years of high school at 5% PA instead of spending $20,000 PA to send them to an elite private school, then you’d have $149,248.90 at the end of the 6 years (not even considering the costs of uniforms, tutors, etc.). Assuming that your child completed four years of post secondary training, and the funds were allowed to compound during this time, there would be $181,412.90 in your child’s “future fund”.

The fund, if taken as an annuity at 5%, would generate an income of $10,270.92 PA from the age of 21 to 65. Given that the average Australian income is now $62,000, graduates from private schools would need to earn $72,270.92 PA for the investment to have just broken even.

If you are able to earn a higher rate of return, then the figures change a lot. At 10% return (the approximate long-run return of the ASX), the “future fund” would be worth $265,145.20 and generate $15,011.53 in income PA. This means that your child would have to earn $77,011.53 in income PA to break even.

Perhaps private schools should have to provide additional income in order to raise the average graduate income. I mean, it is an investment, isn’t it?

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