Student debt myth no. 3: The graduate premium makes the system fair

As concern about an unsustainable student finance system is growing quickly along with how universities are conducting themselves and delivering value to students, Ian Wells, PASD (Parents Against Student Debt) supporter, challenges some core myths in a series of five articles


In March 2017, the Department for Education reported that graduates earned on average £9,500 more than non-graduates over the 10-year period to 2016. The so-called graduate premium is cited as justification for demanding repayment of student loans from those receiving the benefit of a university education. However, a closer look at the numbers shows how misleading this headline is.

One of the big problems with tracking graduate earnings is that the data is always late simply because you have to wait a considerable time to see what graduates of any particular year earn over their working life. The £9,500 premium is for all graduates of working age, so includes those from an age when far fewer attended university and, given the intensive selection that prevailed then, were those who would be expected to turn out to be high earners in any case. In the 1970s, 1980s and into the 1990s most graduates expected to be recruited on graduate trainee schemes and paid within a recognised range of “graduate salaries”, which increased each year and were above-average earnings. The majority of graduates then enjoyed a graduate premium and most were high-flyers relative to their contemporaries. These lucky – and smart – boomers are in this analysis skewing the numbers upwards, and most are not repaying any student debt.

Pinch of salt

If we were able to look at the data in 20 years’ time for those leaving university in 2017, the picture would be very different. With almost a half of young people going to university, and increasing scepticism among employers about the value of a degree, it is only a highly privileged top slice of graduates landing the prestige graduate jobs that were the norm decades ago. reflects well the expectations of young graduates today:

“According to the latest High Fliers report, The Graduate Market in 2016, the median starting salary for UK graduates in 2016 is £30,000. However, we estimate the average starting salary for graduates is £19,000–£22,000.

The problem with the majority of research conducted on graduate starting salaries is the concentration on prestigious employers who can afford to pay big money and compete for the best graduate talent. The High Fliers report focuses on the top 100 graduate employers and therefore should not be seen as a true reflection of the market.

Inaccurate figures can lead to unrealistic salary expectations among graduates. £30,000 starting salaries…apply to a minority of top-of-the-class graduates in the UK.”

In fact many of today’s recent graduates have struggled greatly to get jobs paying above minimum wage and competition in some sectors for jobs around the £20,000 mark – some way below the current average wage of £27,000 – is intense.

Uneven reward

The variability of earnings is also driven by choice of subject. The Department for Education has recently published its June 2017 report of graduate earnings, five years after graduation in 2008/9, based on tax returns for 2014/15 (even though this is the latest available data it is still eight years since this cohort graduated). The results show big variations in median earnings: creative arts graduates are still earning £20,000 five years after graduation whilst medicine and dentistry graduates are earning £47,000. Graduates of 14 out of 23 subjects were still earning below the then average wage of around £26,000.

The Economist used the same data for its analysis of which universities do most to boost graduate salaries. The results showed yet more variability: earnings after five years could be predicted based not only on choice of subject but, especially, on how selective the university was (i.e. the A level results needed for entry). Not surprisingly, students who get themselves into prestige universities to study subjects such as business, economics, science and technology fared considerably better than average. A lot of university selection by students is about signalling rather than the academic added-value of the course – if you were good enough to get into x university to study y then you will be a good employment bet. It seems these input factors weigh much more heavily on future lives and outcomes than the time spent at university.

JAMs today and tomorrow

A consequence of opening up university education to many more young people has been that within the half a million or so students starting university every year there is a huge variability of social background, wealth and ability – all important factors in life outcomes. And when they leave university after three years with a degree and £57,000 of debt there is an enormous variability in the paths they take and especially the level of their future earnings. Some will go on to earn a very healthy graduate premium, some will get by on casual work, but the vast majority will be somewhere in the middle with around-average earnings and very much in the “just about managing” (JAM) category.

One of the factors in the government’s decision not to keep its promise to increase the £21,000 loan repayment threshold was that fewer graduates were getting jobs that paid above it. The days of a fine graduate premium for most who attend our universities are already long behind us.