While not a surprise bill to be landing on many parents’ doorstep each year, fees for schools and university tuition can still land at inopportune moments. Average private day school fees hover around £6,226 per term, rising to £14,980 for boarding schools. Many of these parents may not have considered using Lombard lending for tuition fees.
Additionally, some schools offer discounts for paying for the full academic year up front, as opposed to term payments which can end up costing more in the long run.
For advisers, this is a familiar conversation. The instinctive response is often to look at what can be sold or drawn on from outside the portfolio. But for many clients, a Lombard facility (borrowing against an investment portfolio or other qualifying assets) is worth putting on the table as an option before any assets are touched.
The VAT effect
The liquidity conversation has become more pressing for many families since the UK government removed the longstanding VAT exemption for independent school fees, bringing most private school fees within the scope of 20% VAT from 1st January 2025.
With such a significant jump in a family’s financial outgoings, sourcing that liquidity in a timely manner is essential in preventing any consequences for their children.
It also means that the upfront payment discount, where a school offers one, is now worth more in absolute cash terms, since it’s a fixed percentage applied to a larger number.
Paying upfront: how portfolio lending can cover tuition fees for the full year
Most schools and universities offer a discount for paying the full year’s fees in one instalment upfront, rather than termly or by instalment plan.
These discounts are commonly in the low single digits, though this varies by institution and should always be checked directly with the school or university.
That discount is easy to underestimate because it’s framed as a fee reduction rather than a return. But annualised, a 3% – 5% saving for paying early is a meaningful figure.
It can comfortably outweigh the cost of borrowing to fund that upfront payment, particularly when the alternative is disturbing a portfolio to free up cash.
Why borrowing against your investments can beat selling
The more familiar route of redeeming investments to cover a fee carries costs that are easy to overlook in the moment:
- It may crystallise a capital gain, creating an unplanned CGT liability at exactly the time the client least wants an extra tax event.
- It forces a decision about what to sell, which can mean unwinding a carefully constructed asset allocation or realising a position at an inopportune point in the market cycle.
- Once sold, that capital stops compounding within the strategy – a cost that’s rarely visible on the invoice but shows up in long-term outcomes.
Positioning Lombard lending for tuition fees with clients
For advisers, the opportunity here is less about “lending” in the abstract and more about reframing a recurring cash flow event. It’s important to ensure that the conversation is solution-led, as opposed to product-led.
- Timing – facilities can typically be arranged or drawn on ahead of the school’s payment deadline, giving the client room to lock in the upfront discount without needing to liquidate anything first.
- Flexibility – many facilities allow repayment as the client’s own cash flow allows, e.g., from dividends, bonuses, or maturing deposits.
- Portfolio continuity – the underlying investment strategy continues uninterrupted, which matters most for clients mid-way through a long-term plan.
- Recurring use – Because fees recur annually (or termly), a facility set up once can often be redrawn each year, turning a one-off conversation into an ongoing part of the client’s financial plan.
Of course, ensuring the clients get the full picture is still essential. This isn’t a free lunch, and it’s worth being upfront with clients about the trade-offs:
- Lombard facilities are typically variable rate and secured against portfolio value, so a market fall can affect the loan-to-value position and, in some cases, trigger a request for additional security or partial repayment.
- The saving only materialises if the discount for paying upfront genuinely exceeds the cost of borrowing over the relevant period. This needs to be checked with actual numbers, not assumed.
- This is a financial solution, not a reduction in the underlying fee cost. The facility still needs a realistic repayment plan.
- Suitability, the client’s wider borrowing exposure, and currency considerations (where the facility currency differs from the underlying assets) should all be assessed as part of any recommendation.
To sum up
School and university fees are one of the more predictable liquidity demands a client will face, which makes them one of the easier ones to plan for. Where an annual payment discount is on offer, a Lombard facility can let a client capture that saving and preserve their investment strategy at the same time, rather than choosing between the two.
