Updated: Jan 26, 2021
What is a debenture?
A debenture is the traditional name given to a loan agreement where the borrower is an institutional borrower. For our purposes, the institution is a school.
The money raised by the debentures becomes a part of the school’s capital structure. The school may use the funds raised through debentures in any way it chooses.
The debenture, but not the interest earned on it, is usually reimbursed after the child leaves the school. However, some schools reimburse in part or do not reimburse at all and some debentures depreciate.
For Hong Kong schools, debentures are sometimes called
and others, but they are essentially still debentures.
Some schools do not offer debentures, many schools offer a variety of debentures and many are unavailable with long waiting lists.
How do schools use debentures?
Many schools (even some pre-schools!) in Hong Kong require that the parents of new students pay a debenture on admission. Parents can sometimes buy a higher priced debenture before beginning the admissions process and earn some priority in the selection system.
Some schools that offer debentures also offer parents an alternative method of funding the school – a capital levy. This is different from a debenture in that it is paid yearly and not in one lump sum. It may amount to the same or more than the debenture over the course of the child’s schooling and is not refundable.
Most schools state that the fees are generally set at a level which covers most if not all of the school’s running costs, but not its capital costs. So, debentures are how parents of students contribute to the long-term funding of the School.
How much is a debenture?
They range from $25,000 for ESF to $10M for the top international schools for each child. Some schools reduce the price for the second and third child entering the same school.
Some schools will offer discounts or relief on the debenture if the financial situation of the family warrants it. In this case, the debenture may be as low as $10,000 or waived entirely.
You may also be able to buy a debenture on the ‘second-hand market’. This means that the school has ‘sold out’ and existing holders can transfer them to others. The price of this transfer may be set by market demands or the school may cap it. The school may also take a cut of the sale price. Such transactions need to be approved by the school.