More people than ever are going to university – is it worth the cost?

Telegraph

2 days ago

Two decades have passed since Tony Blair first pledged to send half of Britain's young people to university, claiming 'no greater ambition than to see a steadily rising proportion gain the huge benefits of a university education'.
In lifting the cap on student numbers, he paved the way for the sector to balloon.
As the number of graduates has soared, so too have tuition fees – first to £9,000 a year under the coalition government in 2010, and this autumn to £9,535 under Sir Keir Starmer.
These young people will be saddled with their student debt for virtually their entire working lives, after the Conservatives quietly extended the loan repayment period from 30 to 40 years in 2023.
Meanwhile, white collar graduate jobs are drying up, as artificial intelligence lays waste to the labour market and businesses buckle under the increased cost of Labour's jobs tax and a higher minimum wage.
Despite this, more young people than ever are heading straight from A-levels into higher education.
Since the turn of the century, the number of undergraduate students has risen by a third to an all-time high of two million. But all this begs the question: is a degree worth such a steep cost?
No option of an early retirement
A typical undergraduate on a three-year course will enter the workforce with around £53,000 of debt. Once their salary exceeds £25,000, they will start paying back 9pc of that balance, plus interest, every month for the following 40 years – almost until retirement.
It will have a profound impact on young people's ability to save for their futures, as pay rises are eroded by tax and student loan repayments.
Take, for example, a graduate earning £70,000 who is offered a new role paying 20pc more. Thanks to the 40pc rate of tax that kicks in on earnings above £52,000, plus the growing proportion of their income eaten up by their student loan, their take-home pay will only increase by 14pc.
Since contributions scale to salary, student loan repayments are more readily described as a 'graduate tax' than a typical debt. A graduate on £30,000 pays £450 a year, for example, while someone on £50,000 pays £2,250.
Ian Futcher, of wealth manager Quilter, warns that losing 9pc of your salary above the threshold means less is left over for pension contributions, especially in your 40s and 50s when many people try to catch up on retirement savings.
'For some graduates, this will mean difficult trade-offs between paying more into a pension or managing the other costs of life,' he says.
Wealthy parents are already ploughing cash into their children's debt pile, 'to help shield them from the demotivating weight of it hanging over them like a bad smell', says Rebecca Williams, of wealth manager Rathbones.
Under the Plan 5 loan, which applies to graduates who started university from 2023, that 'bad smell' may be worse than ever. The interest rate was lowered, but so was the threshold at which you start paying – from £28,470 to £25,000 – meaning even those on minimum wage may have to start making payments straight away.
Without some help, there will be no early retirement for the Plan 5 generation. Repayments will likely continue until they are at least 62, which Ms Williams says is 'a level of forward planning that previous generations of graduates simply haven't faced'.
No longer a golden ticket
This would be an easier pill for young people to swallow if university degrees were still a golden ticket to lucrative employment – or indeed any employment. But that is increasingly no longer the case.
HMRC figures published this week revealed the number of people on UK payrolls fell by 164,000 in the last year, with the sharpest fall recorded in the 25 to 34 age group.
Separate analysis by Adzuna, a job search engine, found a harsher decline in vacancies aimed at recent graduates than in the wider job market.
Some are quick to blame AI for automating away the sorts of menial jobs traditionally done by early career workers. Dario Amodei, of AI firm Anthropic, warned earlier this year that AI could kill off half of all entry-level white collar jobs.
Adzuna data shows entry-level vacancies have fallen by 32pc since the release of ChatGPT in November 2022.
The Big Four consultancy firms have made sharp cuts to their headcounts since that time too, according to figures from executive search firm Patrick Morgan.
One in 10 graduates have already changed career plans amid fears the technology will upend their futures, according to a survey by university and career advisers Prospects.
But economists are sceptical that AI has caused this hit to the labour market. Instead, most point the finger at Chancellor Rachel Reeves, whose decision to raise employers' National Insurance contributions was an effective tax raid on companies hiring new workers.
The increased tax burden seems to have accelerated a fall in vacancies in graduate-friendly industries, such as in law or finance, where the number of employees under 30 has fallen by 10pc since 2016.
'An insurance policy for unemployment'
Salaries, meanwhile, are stagnating as real wages fail to keep pace with stubborn inflation. A report published by the Centre for Cities think tank in January found that workers in most parts of the country are no better off than they were than before the financial crisis.
Across the Western world, the gap between graduate salaries and non-graduate salaries – the so-called 'university wage premium' – is shrinking. A research paper by the Resolution Foundation and King's College London's Policy Institute found that although young graduates earn £5,000 more annually than non-graduates, that premium is lower than it was 10 years ago.
The report found that graduate wages had remained 'broadly flat' in the last decade, in part because of a prolonged public sector pay squeeze for degree-educated NHS workers and teachers. It added that the premium was being further eroded by a rising minimum wage.
However, David Willetts, of the Resolution Foundation, said it was 'short-termist' for analysts to focus on what graduates were doing 15 months after graduation. The think tank's research suggests that in the long term, it still makes sense to do a degree, provided it is not one of the many Mickey Mouse courses universities offer in 2025.
The paper concluded that an undergraduate degree was still worth between £190,000 and £280,000 more relative to what a graduate would have earned over their lifetime had they not gone to university, even accounting for tax and loan repayments.
Even if degrees do not immediately lead to high salaries, Nick Hillman, of the Higher Education Policy Institute, describes them as an 'insurance policy for unemployment'.
Speaking to the Guardian in 2023, Mr Hillman singled out humanities degrees as teaching the human skills 'that AI and computers find hard to replicate'.
Choosing wisely
An increasing share of graduates are working in non-graduate jobs. A 2023 report by the Institute for Fiscal Studies found 42pc of university-educated workers outside of London worked in a job that did not require a degree – up from 31pc in 1993.
The onus, therefore, falls on prospective students to be discerning amid a sea of Mickey Mouse courses that will likely lead to low pay. Degree courses in photography, criminology or geography, for example, typically lead to salaries below £24,000, according to Adzuna.
Critics argue that many of these cheap-to-run courses exist to be flogged to international students, whose fees are uncapped, to shore up ailing university finances.
Others, including former prime minister, Rishi Sunak, have pushed for more school leavers to be funnelled towards high-skill apprenticeships, rather than degrees that 'make students poorer'.
New Labour's target to send 50pc of school leavers to university was hit in 2019. More recently, the party has instead pledged to 'continue to support the aspiration of every person who meets the requirements' – perhaps a subtle way of saying that, as annual fees creep up, university may not be for everyone.
For those who can stomach 40 years of the 'graduate tax', however, a degree is still likely worth it. As progressive as it may seem when companies like Apple or IBM drop them from job descriptions, hiring managers will continue to use degrees as an easy way to benchmark CVs.
But now more than ever, students have to be discerning about whether their course is one of quality – and one that will set them up for the future.