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Are degrees worth it? Part 3 - The impact of cost

By Danny Harrington

Having established the hugely increased financial burden on today’s university students compared to not that long ago, one might ask, so what? Certainly the political thinking that has overseen this sea-change in higher education funding in the UK has felt that graduates should shoulder a significant portion of their university costs (and that is across the political spectrum, loans came in under a Labour government and further changes have occurred under Conservative government). This argument takes the line that graduates are the primary beneficiaries of having a degree, that this benefit is reflected primarily by the graduate premium i.e. significantly higher earnings over their lifetime, and that therefore they should “repay” some of the cost of the qualification that got them there. In my opinion this argument is shot through with inconsistency and is downright wrong.


First, graduates have given up between 3 and 8 years of potential working life in order to take their degree(s) so that immediately needs to be taken into account. Current thinking says they should not work for this period and then have to pay back the cost as well. The minimum wage for 18-20 year olds is about GBP11,000 per year, so the best case scenario for home students is their degree now costs GBP20,000 per year plus living expenses. International students now face a best case cost of closer to GBP40,000 per year. The current graduate premium averages out at about GBP6,600 per year so it takes at least 10 years to cover the extra cost. Of course, graduates in professional jobswill expect more raid pay rises and so the time is probably shorter. UK government figures suggest that graduate men earn an average of GBP168,000 more over their lifetime than of they left school with A-levels and women GBP252,000 more over their lifetime.


The statistics do not yet show what impact the increasing number of graduates has had on graduate earnings but it is generally felt that having gone through a couple of recessional cycles with little statistical impact since the expansion in numbers in the 1990s, the increased supply of graduates has not pushed salaries down. Fluctuations are more likely to be part of the wider economic situation. So far it seems reasonable to charge students. But what the figures do not yet show is the range of salaries involved. For students looking at the cost-benefit of taking a degree, if a very small number of graduates (top ranked universities, high class degree result, good social network) earn astronomical salaries then the graduate premium for most graduates will be much lower. This begins to make the cost-benefit much more precarious.


It is these worries which have produced the results of recent surveys in the UK. The Sutton Trust recently found that over 70% of secondary school students expect to go to university but half worry about the cost and having loans to repay for up to 30 years. Girls are more likely to want to go to university, and supporters of self-finance would point to the better graduate premium for women as a key reason. An Aviva survey suggested as many as 30% of graduates felt their course had “not been worth it”. However, government surveys suggest student satisfaction remains high at about 86% and many feel they can repay loans in a shorter time. University applications remain at very high levels and these worries are clearly not deterring people yet.


Data is lacking for the graduate premium that international students enjoy but they are likely to be in very different circumstances. First, they have to pay full fees and have higher additional expenses so they usually come from a wealthier cohort whose parents, as with many in the UK, fund their children’s education. In many ways this is a form of inheritance “tax”. Second, the premium for international graduates in emerging economies is likely to be much much higher and the advantage much clearer to see.


But this highlights a fundamental problem. As soon as the burden of cost is pushed to  students and families then this is effectively a tax on them and it is a regressive one. Furthermore, none of this takes into account the benefit to the wider economy and therefore society in general of having a highly educated workforce. Without large numbers of people electing to take degrees and therefore have higher level occupations the economy cannot progress into a higher value post-industrial phase. That is why I would make the case for government funding of higher education and why the burden of cost should fall more broadly across society.


And we are still begging the question, what is university for? There is an argument that cost shouldn’t come into it. Until next time…

Dulwich College Singapore

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