The Promise of a University Degree: is it worth it?
University is seen as a rite of passage for many students considering their post A level future, with over 50% of students now attending higher education. Tony Blair’s pledge of reaching this number of students attending higher education by 2010 has now been met, and the data shows this figure is still continuing to rise. Whilst university is sold as a promise to a more affluent future, rising student debt and a scarcity of graduate jobs suggest that the importance placed on a university degree may be mistaken.
Source: World Higher Education Database
According to Oxford Economics, universities generate £95 billion annually for the UK economy. Perhaps the most obvious way universities boost growth is the generation of human capital through learning and research, which leads to a more skilled and therefore productive workforce. Indeed, the Department for Business Innovation and Skills estimates that for every additional 1% of the workforce with a degree, long run productivity increases by between 0.2 and 0.5%. Not only this, but according to development theory, better educated citizens demand more effective institutions, such as a legal system and well-functioning democracy, meaning countries with higher levels of human capital tend to have better performing institutions and thus higher levels of growth. An estimate by VoxEU suggests that if 10 additional universities were created within the UK, national income would increase by 0.7%, which would amount to approximately £11 billion.
At the local economy level, universities offer an important boost to economic activity. They are estimated to employ just under a million workers, all of whom use their wages to consume goods and services, encouraging a positive multiplier effect. Indeed, it is estimated that for every 100 jobs created in a university, 117 are created elsewhere. They also attract both workers and students to the area, including international students, who are estimated to contribute £2.3 billion to the economy over ten years through taxes alone. The migration of skilled workers to these areas can lead to external economies of scale for local firms, who will have lower recruitment costs and a greater pool of labour to choose from, resulting in higher profit which can be used to invest and innovate.
The UK has some of the top higher education programmes, with 4 universities ranking in the world top ten, according to the QS World University Ranking. Ranked 1st in Europe for entrepreneurship and 2nd in the world for innovation and scientific research quality, it attracts over half a million international students every year. However, despite this, the UK only ranks fourth out of the G7 countries when it comes to labour productivity, and is 17% below the US and France. Additionally, as a percentage of GDP the UK has low levels of R&D investment and skills shortages in key sectors, all of which limits growth.
Whilst there appears to be clear macroeconomic benefits to universities, it is becoming apparent that the personal benefits are not what they are promised. Although graduates are less likely to be unemployed than non-graduates, on average earning £9,500 more, this earnings gap is shrinking whilst student debt is on the rise. The government estimates that only 25% of students will fully repay their loan, suggesting that the majority do not earn significantly above the threshold for repayment. At the end of the 2020-21 financial year, outstanding student loan debt amounted to £160 billion – a staggering amount. Unfortunately for many of these students, entering into this debt is becoming increasingly futile. According to the Chartered Institute of Personnel and Development, nearly 50% of graduates are in jobs that don’t require graduate skills, suggesting that there is an excess of graduates in many sectors, although STEM graduates are reported to be in short supply. Graduates are beginning to feel the effects of this, with a survey conducted by the Higher Education Policy Institute thinktank finding that 44% of students thought their degree was poor value for money in 2021. Whilst universities’ response to the pandemic may be partly to blame, it cannot account for this high figure – even in 2019, 30% of students reported feeling this way. Particularly as many students have reported applying to university due to social pressure, this seems a significant financial burden to undertake with an uncertain reward. Student loan repayments will limit savings, having an impact lasting through to retirement.
Additionally, universities are far from the solution to solving the social mobility issue. The Institute for Fiscal Studies found that, controlling for subject and university, students from richer backgrounds earn on average 10% more than those from poorer backgrounds after graduating. This issue is emphasised by Paul Johnson, the head of the Institute, who said ‘inheritance is probably the most crucial factor in determining a person’s overall wealth since Victorian times’. Whilst the introduction of government backed postgraduate loans caused an increase from 6% to 12.9% of graduates from lower income backgrounds studying for masters, there is still a long way to go.
Encouraging all students to attend university is clearly not the definitive answer to these issues. Apprenticeships offer an alternative solution, with just under 500,000 people beginning apprenticeship schemes in 2016. In comparison to the 83% satisfaction rate for university students reported in the National Student Survey, 89% of apprentices said they were satisfied with their apprenticeships. The majority of apprentices will qualify with a qualification for which they were paid, a guaranteed job and no debt, putting them in a valuable position.
Strong importance is placed on obtaining a university degree. However, the promotion of other paths, such as apprenticeships, could help to reduce youth unemployment, as well as fill the skill shortage in many key sectors. A generation are starting their lives with billions of pounds worth of debt – is this really sustainable?