King's College London

Growing doubts about the financial returns from gaining a degree and concerns about too many people now going to university are challenged in a new report by former universities minister David Willetts.

Young graduates earn £5,000 more annually than non-graduates, but that premium is lower than it was 10 years ago. The real earnings of young graduates have been broadly flat over the last decade, similar to earnings overall, whereas non-graduate earnings have been boosted by the minimum wage. But graduates individually do continue to enjoy rises in their earnings year on year – much higher than non-graduates, Willetts says.

Moreover, graduates remain in the workforce for longer and enjoy increases in earnings out into middle age, unlike people with job-specific vocational qualifications. But much of the debate ignores these long-lasting benefits – a classic example of the problems of short-termism, Willetts writes. Assessing university performance by looking at what graduates are doing 15 months after graduation is another vivid example of this short-termism, he says.

Overall, an undergraduate degree is estimated to be worth on average £280,000 for men and £190,000 for women, net of tax and student loan repayments, relative to what a graduate would have earned over their lifetime had they not gone to university.

The paper, published by the Policy Institute at King’s College London, where Willetts is a visiting professor, and the Resolution Foundation, of which he is president, argues the following:

• More does not mean worse. Higher education participation goes up just about every year in every OECD country. It is a deep-seated economic and cultural trend. Despite the increased numbers going and negative media, 81% of graduates say their degree was worth it overall and 87% say they would go to university again if they had the choice. Young people are far more likely to regret not going to university than going.
• It pays to go to university. It is striking how well graduate incomes have held up despite such rapid increases in their numbers. By the age of 31, graduates are earning 37% more than non-graduates with at least two A-levels – £30,750 and £22,500, respectively. Data on both actual and projected lifetime earnings of recent graduates shows significant benefits relative to non-graduates, including non-graduates with similar prior educational attainment.
• And it pays the country too. The taxpayer contribution to the cost of higher education participation is relatively low. Indeed, it is the lowest in the OECD, whose latest data puts the UK’s share of public expenditure on tertiary education at 23%, compared to an OECD average of 68%. There is a direct gain to the exchequer of an individual enrolling in an undergraduate course of around £110,000 per student for men and £30,000 per student for women.
• The non-economic returns are at least as great as the economic. “If you were a doctor, you would prescribe more education,” Willetts says. Studies show that higher education is a driver of better physical and mental health, even after accounting for other biographical factors, such as socioeconomic background and gender. The benefits of higher education are felt by the children of graduates too, and these cross-generational benefits are estimated to be worth at least as much as the financial benefits of increased earnings.
• There is little evidence of widespread “bad” courses. On two of the three so-called “B3” measures that the Office for Students requires universities to meet – students’ progression within a course and completion of the course – English universities are already performing best in the OECD. And the third measure – graduates’ outcomes (ie employment and further study) 15 months after graduation – is far too short-term to be a serious measure of university performance, Willetts says.
• Degree apprenticeships are not the “silver bullet” that some think. Degree apprenticeships are the programme that has been most favoured by ministers and the media but expanding them comes at the expense of other apprenticeships, Willetts says. In particular, he argues degree apprenticeships are squeezing out apprenticeships for younger people, with the share of the apprenticeship levy spent on degree apprenticeships increasing from around 2% in 2017–18 to nearly 16% in 2021–22. They also have other downsides, such as far lower completion rates than university degrees (55% compared with 89%) and being less geared towards social mobility than university degrees: only 5% of degree apprenticeship students were eligible for free school meals, compared with 17% of university students.
  
  Willetts proposes that degree apprenticeships should be funded with fees and loans like other higher education qualifications. That would liberate apprenticeship levy funds for young apprentices, he says.
• This evidence puts the fear about student loans and graduate repayments in perspective. The average income of a graduate aged 21 to 30 is now £31,500. Loan repayments are 9% on earnings above £25,000 on the latest terms. That is a deduction of just under £50 per month on pay of £2,625 per month for the average young graduate. The average young graduate is earning £5,000 per year more than the non-graduate – about £420 extra per month. Paying £50 per month out of that to fund the university which gave such a boost to their earnings is not an unfair burden, Willetts argues – particularly as those monthly repayments don’t change if fees go up.

David Willetts, former universities minister and member of the House of Lords, said:

“It is great that the minimum wage has boosted the earnings of people on low incomes, many of them non-graduates. But that does not mean it has ceased to be worth going to university, which massively boosts lifetime earnings especially for young people who were on free school meals. It is one of the most powerful drivers of social mobility and of economic growth we have got.”