The Graduate Premium: manna, myth or plain mis-selling?

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This paper challenges the £100,000 lifetime graduate earnings premium so often used by politicians to justify increasing fees for university courses, changing the terms and conditions, or increasing interest rates.

A wide range of factors influence whether a graduate is likely to receive an earnings premium. These include, amongst others, pre-university education, the higher education institution attended, socio-economic background, gender, ethnicity, subject choice, degree result, work experience undertaken, the supply of graduates in the labour market, chosen career path and conditions in the employment market at the time.

This paper finds that, apart from Oxbridge, medical and dentistry graduates, there is no guaranteed graduate earnings premium for the many young people entering higher education. It begs the question as to why the government is encouraging 50% higher education participation rates if the employment market is not providing graduate-level pay in return for student investment.

The UK now finds itself with more over-qualified workers than any OECD country other than Japan, with graduates under increasing pressure to undertake further post-graduate study – MAs/MScs – in order to further set themselves apart from their peers, thereby incurring yet more debt.

The paper concludes that the UK risks creating a self-perpetuating debt-generating engine that serves only those who run it, while leaving graduates from poorer background to pay an extra 9% graduate tax on earnings over £21,000 for the next 30 years.










Posted on: 31 July, 2016

4 thoughts on “The Graduate Premium: manna, myth or plain mis-selling?

  1. Martin McAreavey

    I have long believed that the decision to place the burden of cost for higher education on graduates was an ideologically motivated one, not dissimilar to that of the Thatcher government introducing the right to buy council houses, which effectively enslaved thousands of people in long term debt commitments.

    Until we as a society begin to invest fairly and effectively in our future prosperity by creating a higher education system that is truly open to all based on ability, we will continue to live this ideological lie.

    Any decent society where the economy creates more value than is consumed by its citizens should be investing in future citizens and creating intellectual wealth via higher education. The UK, under the Tories and pseudo-Tories (‘New Labour’) are condemning us to a bleak future.

  2. Eddie Hodgson

    There is a correlation between tuition fee levels and the increasing difficulty for young people in buying their own houses/flats. The government initially obtained an assurance from the Council for Mortgage Lending that student debt would not affect the ability to get a mortgage. This was soon rejected by the FCA and now all mortgage lenders take student debt repayments into account in deciding the level of mortgage to grant. This partly accounts for a big increase in renting, and the increase in rents, which puts further pressure on young people.

  3. Michael Liversidge

    Comparing institutions and individual degree courses for their ‘value for money’ is notoriously difficult, most of all for someone thinking about choosing a university and a subject to study. The ‘graduate earnings premium’ is not the only variable.

    Another which the report briefly alludes to is what a student will be paying for [pp 30-31: ‘Less “face-time”, falling standards’]. Comparing similar courses from the Unistats Key Information Sets (KIS) data should enable a prospective applicant to make a judgement about how many teaching contact hours the tuition fee buys, but it is not as straightforward to work out as it should be.

    For each degree, the KIS section ‘Time in lectures, seminars and similar’ provides the teaching time as a percentage of a total which is explained (provided you click on the ‘i’ for information icon) by the statement that ‘In UK higher education the expectation is that students full-time will spend 1200 hours a year learning’. There are separate percentage breakdowns for each year of study, from which the overall average for the degree is calculated. This looks easy to translate into a meaningful number by working out what, for example, 12 per cent of 1,200 hours equates to for one year, and then multiplying it by however many years the full-time degree takes to complete. But the searcher will only find this out by doing the calculation, and one wonders how many prospective students actually find the site, or check the same information on university sites. Of course, their fault if the do not – caveat emptor.

    It would be much simpler if, for each degree, the actual total number of lecture, seminar, tutorial ‘and similar’ hours were clearly stated, so that someone thinking of buying the product could see that different degrees in the same subject delivered often very different teaching inputs. Looking randomly at one humanities degree across 4 universities, all charging the same £27,000 for 3 years, produced total tuition hours for 3 years ranging between 432 (12%) and 936 (26%). Recently I served as an external reviewer on a validation panel for a proposed new degree in the same subject which will deliver 360 contact hours in each year, 1080 in total equating to 30 per cent of the learning time ‘expectation’ as it is expressed by the KIS summary on the Unistats website. Everyone in higher education understands that self-directed, independent learning is an important part of the process of becoming self-sufficient and ready for work, but such discrepancies in provision should at least be easily identified by a potential consumer.

    Tuition hours alone do not enable a prospective purchaser to judge the quality of the product on offer. Staff to student ratios and spending per head on learning resources and infrastructure are other comparative indicators the intending purchaser would find helpful to make an informed choice but which are not included in KIS summaries, though their effects may be discernible to the more statistically sophisticated from the overall satisfaction scores for each degree included in its KIS.
    The ‘added value’ of a degree may translate into enhanced employability and hence yield a graduate earnings premium, but as the report shows these are not guaranteed and can vary according to subject and institution.

    Judging a degree purely on the basis of the financial return on its investment cost is too crudely instrumentalist a measure, however. Higher education creates interesting, adaptable and able people who have much else to contribute to society on which a monetary value cannot always be placed. Becoming a graduate is not just about what it costs, nor the income it may (or may not) generate, nor its perceived benefit to national GDP. For many who achieve a degree , and often for those who help them along the way, it involves sacrifices which, as the report amply demonstrates, may last a lifetime. They invest money, time and effort to become graduates. They need realistic and clear guidance about the rewards and dividends they might hope their investment will bring them, and also that like any investment its projected return can turn out to be less than anticipated, or even illusory. They also need more clearly presented information about what they will be getting for their money, and exactly how much of it their money will buy.

  4. Richard hext

    I don’t find this analysis particularly helpful. The whole article is based on a comparison of the total accumulated debt against the potential earning premium. This would be a valid comparison for any normal loan, but student loans are not normal. They are written off after 30 years, so what matters is not the overall size of the loan but the amount that each student is required to repay.

    More useful, perhaps, would be some sort of analysis which modeled the effect of loan repayments vs salary expectations for different fields. Say, for example, the average salary for a non-graduate was £30,000 per year. A graduate earning £30,000 per year would have to make loan repayments of (I think) £900, so would need an earnings premium of approximately £2,000 after tax etc to receive the same take-home pay as the non-graduate. In this example, a relatively modest earning premium wipes out the loan repayments. The fact that the loan would continue to grow is relatively immaterial, because repayments don’t grow with it, and because it disappears no matter how big it is after 30 years.

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