Anyone with a child knows that private education is expensive in the UAE. Fees range between AED 40,000 and AED 95,000 per year – and then there are the essential extras like transportation, schoolbooks and uniforms, plus the discretionary but largely unavoidable costs of extra-curricular activities and maybe private tuition. How will you pay for that?
Over the last five years school fees have risen 20 percent on average, more so for years seven to 13. And this year alone, Adec has allowed a nine percent increase.
So on average the cost of sending your child to secondary school in Abu Dhabi will be a little over AED 60,000 in fees for the coming year. The extras can add a further AED 15,000.
Factor in inflation at a reasonable five percent per year, and you have a total bill that could easily top AED 1.5 million for an 18-year-old.
Some employers provide assistance with school fees, though often only for one child and usually at an amount that doesn’t cover all the expenses. Schooling allowances are becoming less common, though; and assuming you can’t use family funds, you’ll need to borrow.
Financial advisers always recommend that you start planning for your children’s education at the earliest possible stage, typically via specialised savings or investment plans that keep the money separate from your everyday expenses.
Such plans are generally flexible, allowing you to temporarily stop contributing or to withdraw the cash early without penalties; you should also look for higher rates of return than you’d get with savings accounts, though in the current climate that wouldn’t be too difficult to achieve anyhow.
Banks offer a number of products to enable parents to save for their children’s education. For instance, Emirates NBD offers the Income Builder – Education Plan with premiums from $150 (AED 550) per month. ADCB’s Unit Linked Savings and HSBC’s are similar, unit-linked plans based on a regular premium and aimed at mid- or long-term capital appreciation.
But HSBC’s 2014 survey of UAE parents found that only one percent had a specific education savings plan, the rest are funding their children’s schooling through their current income. “Parents need to move beyond this short-term approach and even speak to an advisor if they find the process too daunting,” says Gifford Nakajima, regional Head of Wealth Development at HSBC.
Expats can of course look outside the UAE to more mature markets where there may be better options available. But it certainly pays to take financial advice from a professional as soon as possible.
Many parents will find themselves faced with a worryingly large school fees bill. And then you need to look at your options.
One obvious option is your credit card. This may be more expensive, but it may come with useful extras like points or cash back; and provided you pay the minimum each month, you have the flexibility of paying back as much as you want on whatever schedule you choose. In some cases this means zero percent interest on a 30-day loan – not to mention the air miles or other rewards.
But it does require financial discipline. And some schools – including GEMS – charge a processing fee for the privilege of using a card; this typically means a two percent surcharge.
On the other hand, NBAD offers a specific GEMS credit card that gives its holders a tuition discount of “up to” seven percent at any of the 29 GEMS schools in the UAE. But the interest rate is up to 11 percent (on a reducing balance). “You would need to investigate what this actually means in practice – never, ever take headline figures like this at face value,” say the experts at Which School Advisor.
The bank also has the NBAD Aldar Academies Visa Platinum Credit Card, which lets you convert fee transactions into a zero percent Easy Payment Plan for up to 18 months. You also get the chance to win back half the tuition fees paid using the card.
Standard Chartered’s Titanium Credit Card offers up to ten percent cash back on school fees (up to a maximum of AED 400 per month) based on the clients’ overall monthly spends. “If you could work out a deal to pay your school fees monthly, it would be a great offer,” says Which School Advisor. “If you pay by term, the percentage cash return is likely to be considerably less.”
A bank loan tends to be more restrictive in terms of repayment amounts and schedules than the card, but will often be cheaper. Some banks have specialised loans designed for school fees payments – the loan amount is often paid directly to the school, for instance – and most banks will allow normal personal loans to be used for the purpose.
But for these unsecured loans, lenders are charging up to ten percent per annum; so for the six years of secondary school at AED 60,000 per year, a loan of AED 360,000 will mean repayment of AED 516,000.
So it pays to be creative. “If you need the money now, then possibly a cheaper form is to remortgage a home with rates still at an all-time low”, suggests Matthew Footner, VP of financial advisors Globaleye in Abu Dhabi.
“Parents need to understand what fits their budget strategy,” says Shehzad Hameed, regional head of retail products for Standard Chartered. “Some parents might prefer to take advantage of a loan to pay the full year fees upfront, others might opt for a six or a 12-month payment plan.”
You may well be rewarded for paying a year’s fees with a discount of four to five percent, so it’s worth considering.
You may also be able to get other benefits by shopping around. “Parents may be able to save money by selecting a certain card or a payment plan that gives them a cut on the school fees or allows them to earn rewards or cash back based on their product selection,” says SC’s Hameed. His advice: look for products or plans that give you maximum value in both the short and long term.
FIND THE FUNDS
Education loans of up to AED 250,000 unsecured, repayment 6-48 months, interest/profit rate 10-14 percent
ADIB says it aims to take care of the complete education experience – “books, transportation, library fees and more”. The loan is paid directly to the school; up to AED 250,000, up to 48 months repayment.
With this loan, Barclays will pay fees directly to the school. Interest rates are 9-10 percent if the applicant’s salary is transferred to Barclays, up to 16 percent otherwise.
NBAD has a good deal on normal personal loans (4.49 percent per year, repayment up to 48 months, borrow up to 20x monthly salary). It also has a couple of credit cards of relevance – one for GEMS schools (a discount of “up to seven percent” on fees) and one for Aldar Academies (convert school fees into a zero percent easy repayment loan for up to 18 months).
NOOR ISLAMIC BANK
“Finding solutions for our customers is an integral part of our business. We endeavour to provide the best financing options in a Sharia’h-compliant manner. We do have tie-ups with employers and are able to finance education costs for qualifying customers across all schools in the UAE. We are looking to add specific needs-based financing solutions to offer them to personal banking consumers.”
ADCB’s simplified online-and-phone-only loans-and-cards bank has loans for up to AED 200,000 with or without salary transfer, repayment terms up to 48 months.
STANDARD CHARTERED BANK
The Titanium Credit Card offers up to ten percent cash back on school fees. “Clients see real value in our product proposition, which enables them to manage an integral part of their household expense while getting the maximum value in the form of cash back.”
THE SCHOOLS FEES LOAN
Some so-called ‘education fees loans’ are no different from the bank’s everyday unsecured personal loans and have no special features beyond the marketing spin. A true schools fees loan should have some or all of these attributes:
- The money is paid to the school, not to you.
- There’s a time limit on the repayments, ideally encouraging repayments within 12 months (so that the debt doesn’t grow as you borrow for the next academic year).
- The interest rate should be better than the usual unsecured personal loan terms.
- Discounts or other rewards will be offered if you use the loan at particular schools.
WORDS BY Dennis Jarrett