Independent Schools Own Up to Major Flaw in the Private School Funding Model

In a extraordinary development, Independent Schools Australia (ISA) has owned up to a fundamental flaw in how government funding of its schools is estimated. A media release issued by ISA reveals that 20% of families in Independent schools receive financial support from other family members.

It is an extraordinary admission because ISA is effectively admitting that its schools are overfunded. They are overfunded because income from other family members is not included in adjusted taxable family income which is used to determine Commonwealth Government funding of private schools. The median adjusted taxable income of parents in a private school determines the capacity to contribute (CTC) score which in turn determines the base level of Commonwealth funding.

Private schools are overfunded to the extent that income from other family members leads to underestimation of adjusted taxable income and the CTC score. The higher the proportion of students who have their fees partially or wholly paid by other family members the greater the overfunding of a school. As a result, the extent of overfuding due to the Bank of Mum and Dad will vary between schools.

The financial support from other family members is commonly referred to as the  Bank of Mum and Dad (grandparents), many of whom are likely to benefit from generous tax concessions. It can also include financial support from other relatives.

The Bank of Mum and Dad is a major source of supplementary non-taxable income for many families. Apart from the payment of school fees, this financial support includes money for house deposits, cars, household assets, childcare, holidays, etc. This other income support frees up family income to be spent on school fees.

The admission by ISA that other family members contribute to the payment of private school fees follows similar admissions by some individual Independent schools.

Two Sydney elite private schools have admitted that many grandparents paid the school fees for students. A spokesman for St Joseph’s College said: “…we have seen an increase in recent years in grandparents wishing to support their grandchildren through high school by providing financial assistance with school fees.”

The headmaster at Knox Grammar said: “Anecdotally, Knox has always had a number of grandparents paying fees, and that number is probably increasing with changes in how people invest”. He also said that grandparents also paid for other items such as excursions.

At another Sydney Independent school half of all fee invoices  are sent directly to grandparents.

It is difficult to estimate the extent to which grandparents pay school fees. However, surveys by financial services firms indicate that a significant proportion do so. For example, the industry superannuation fund, REST, found that almost one-third of grandparents use their superannuation to pay school fees for grandchildren. A survey by the education finance company Edstart, found that only half of families with children in private schools can afford the fees from their income, so it is hardly surprising that grandparents are helping. The Sydney Morning Herald  reported that a Melbourne wealth management firm said that 70% of its clients are paying school fees for their grandchildren.

It should be noted that ignoring income provided by other family members is just one source of overfunding of Independent schools. Another major flaw in the private school funding model is that income of hundreds of millions from donations, investment income and other income from rental properties and the hire of facilities is also ignored in determining government funding. In addition, data provided to Senate Budget Estimates 2025-26 by the Commonwealth Department of Education show that Independent (and Catholic) schools are overfunded in all states and territories under the current model [Answer to Question on Notice SQ25-000647].

The confession by ISA and other substantial evidence that the Bank of Mum and Dad is a significant source of income for parents in private schools should prompt an urgent  review of how private schools are funded by the Commonwealth Government. The failure to take this additional source of family income into account results in overfunding of private schools and significant waste of taxpayer resources.

Such a review should lead to a new model for funding private schools to ensure they are funded solely according to need. The basic principle behind government funding of private schools should only be to fill any gap between the base schooling resource standard and income from fees and other private sources. This funding should be conditional on private schools meeting the same social obligations and standards as public schools.

Schools with private income above the resource standard should not be entitled to baseline government funding because it would extend their resource advantage over public schools. There is no inherent entitlement to taxpayer funding of private schools. The only responsibility of government is to ensure that children are not deprived of an adequate education because they attend a private school whose total resources are less than the community resource standard.