Allianz Easyfees

Sydney Morning Herald

Wednesday January 31, 2007

KELSEY MUNRO

THIS NEW PERSONAL LOAN IS BEING MARKETED AS A TAILORED SOLUTION FOR PARENTS WANTING TO REAP THE BENEFITS OF PAYING PRIVATE SCHOOL FEES IN FULL AT THE START OF THE YEAR. HOWEVER, ITS IS NOT THE ONLY WAY TO EASE THE BURDEN, WRITES KELSEY MUNRO.

With some private schools in NSW and Victoria now charging more than $20,000 a year in school fees for senior students, many parents have to make substantial financial sacrifices to pay for private education. If that's not bad enough, in the past decade, school fees have increased at more than twice the rate of inflation.

Detecting an untapped market of anxious, cash-strapped parents looking for tailored financial help, general insurer Allianz has developed a personal loan to enable parents to pay fees in manageable instalments.

How it works Allianz is rolling out a pilot version of the EasyFees product in NSW with plans to take it national next year. Allianz pays the school fees at the beginning of the year and parents repay the loan in 10 instalments over the year. The interest rate is 11.9 per cent. It's an online-only product, with no application or establishment fees, although applicants must undergo a credit check. See www.allianz.com.au/easyfees.

If a school gives a discount for upfront payments, the EasyFees loan enables parents to take advantage of the savings. Allianz maintains EasyFees is cheaper compared to other borrowing options such as an unsecured personal loan or a credit card (see table).

"EasyFees may be a smarter option than using a credit card or home loan facility," says Nicholas Schofield, Allianz general manager of corporate affairs. He cites the example of paying school fees of $8000 with a credit card charging 16 per cent a year (2.5 per cent a month). Even if you make repayments at five times the minimum monthly amount on this sum, it will take you four years to pay it off completely.

Denis Orrock, general manager of research firm, Infochoice, says: "Any parent who uses a home loan or credit card and only pays back the minimum should perhaps be going back to school themselves!" (See tips on page 11.)

What it costs If you pay the loan with a credit card, Allianz charges you the merchant fees (1.1939 per cent for Visa and Mastercard and 2.8256 per cent for American Express). The company also charges bank dishonour fees if a direct debit is rejected.

If an instalment is not paid by the due date, there's a $23.50 administration fee, plus overdue interest charges, equal to the normal annual interest rate plus a default margin of 2 per cent a year.

Allianz's publicity material sets out a comparison table for a $10,000 loan, comparing the on-time interest repayments under EasyFees with those for personal loans, credit cards and home loans.

It calculates that for a $10,000 loan repaid at $1055 a month for 10 months at the EasyFees rate of 11.9 per cent, total interest payable is $550.60.

Orrock says: "The credit card rate they use of 17.25 per cent is debatable and self-serving, with a huge array of low rate cards on offer as low as 8.49 per cent [MECU] or 8.99 per cent [St George Bank and BankWest]. It could be argued a credit card specifically used for this purpose would deliver a better result."

A personal loan at 13.5 per cent interest will cost slightly more than EasyFees. But there are personal loans with cheaper rates (although these may have conditions attached).

"As far as personal loans go," says Anthony Sexton, financial analyst at research firm Cannex, "the lowest rate that I can find as at January 15 is Heritage's Cake and Eat It loan at 7.83 per cent which would result in total interest paid of $357 over a period of 11 months." That's cheaper than EasyFees.

Allianz acknowledges that redrawing on your mortgage, barring excessive fees for doing so, will be cheaper than EasyFees providing you repay the loan over 10 months.

Pros The 10-month repayment structure may be better for some people than other forms of loans, says financial planner Laura Menschik, managing director of WLM Financial Services. "With credit-card loans or home loans, psychologically there is no discipline to pay more than a minimum. This product is more structured and allows someone who has sufficient cash flow to pay it off quickly. It may be an option for people who don't have other facilities to borrow against, say no mortgage or car," Menschik says. "I would say that for a once-off, cash-flow crunch this could be better than other options."

You should also check the flexibility of the repayment schedule, she says. "If you're going back to work or coming into an inheritance or getting a bonus and you want to pay it off early, check if the product has the flexibility of a credit card for quick repayment."

Schofield says EasyFees has this: "Parents can repay the loan early, hence saving interest, and there are no additional fees or charges for early repayment."

Cons Compared with other methods, such as mortgage redraws, competitive personal loans or even low-rate credit cards, EasyFees can cost more. "It would pay to look around if you were prepared to put in the extra effort to save money," Sexton says.

Where it fits in It's one of a raft of products aimed at helping parents bear the burden of their kids' education; it's a loan and not an education savings plan or investment fund, both of which require long-term saving and planning. For most parents with the cash flow to meet repayments of $1000 a month or more, there are cheaper options.

"The product is a personal loan, tailored especially to pay school fees. Other than that, it doesn't really offer anything different," Sexton says.

But it will suit people who want a short-term loan that helps smooth out spikes in the family budget without turning it into long-term debt.

© 2007 Sydney Morning Herald

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