Almost half a million students start-university this month. It’s an exciting time: the launch of adult life and independence. But the sad truth is that most of them shouldn’t bother packing their bags, because their degree will prove a terrible investment.
I’m sorry to be the harbinger of doom at such a momentous time, but many of these new students have been sold a false dream. They’ve been encouraged to put themselves massively in debt to fund an education that is supposed to lead to great career prospects, but too often doesn’t.
The majority of graduates (59 per cent) end up working in non-graduate jobs, according to the Chartered Institute of Personnel and Development. These are real people — I met many of them when I made my Radio 4 series Your Money and Your Life — who have left university with high expectations for their lives ahead. But those hopes have been crushed by the reality of the job market.
In 1994, about 100,000 students a year went to university for a first degree and another 100,000 to polytechnics. This month, 468,000 students will start in the 2016-academic year. The number of graduates has more than doubled in just over two decades, but the number of highly skilled jobs-available for them has not. The result? The majority are not earning graduate-level wages. The ‘graduate premium’, for many of them, has disappeared.
That calculation mattered less in my student days because the government paid tuition fees, there were still grants to be had, and student accommodation was relatively cheap. But students now leaving university in England are, on average, £44,000 in debt, according to the Sutton Trust educational charity. Many of them will never actually manage to pay off their student loans, and perhaps the rules may change in future — but what other £44,000 investment is treated so casually, with such complete-disregard for its financial return?
I suggest (only slightly tongue-in-cheek) that universities, like fund managers, should be forced to publish rates of return: the-average salary uplift over ten years compared with the cost of the average degree in tuition fees. If the return is negative then at the very least it may force 17-year-olds and their parents to reconsider.
For those in graduate-level jobs, starting salaries have stagnated and have not kept up with the increase in tuition fees, according to market research firm High Fliers. So even for those at the top of the pile, the financial returns from university education are falling fast. And it’s not just tuition fees that have risen substantially.
Recently I found myself passing my old university hall of residence. When I lived there in 1988 it was a pretty grim place, with graffiti on the lift doors, mouldy showers and linoleum on the floor — but it didn’t leave me in debt. This summer I looked through the doors into the reception area and saw a brightly coloured sofa, a 70-inch TV screen and a clean carpet. It seems nice accommodation is a big selling point for student recruitment, so universities have brought in outside-contractors to create a more attractive image. Some 45 per cent of all student beds are now provided by private companies: the biggest is the FTSE 250-listed, Bristol-based Unite Group, which last year made pre-tax profits of £388 million.
For the less academic, university now is a waste of money. And please note I use the term ‘less academic’, not less smart or less clever, or potentially less successful. A poor degree from a middle-ranking university in a non-vocational subject just isn’t worth the money — as a recent survey from the National Union of Students agrees.
It found that the majority of-graduates didn’t believe their degree was worth the cost, though only 6 per cent said they would not have gone into higher education if they could go back in time. That’s probably because leaving home to live for three or four years in more or less total freedom with a bunch of other students is probably the most fun you’ll have in your life.
But I’m considering the costs and benefits of the experience from a strictly financial perspective. Parents may want their children to get a degree either because they themselves did, or they didn’t. A degree is a mark of social status, for parents as well as offspring. But frankly, recent graduates would have been better off investing £44,000 in companies that profit from students. Shares in Unite Group, by the way, have increased from a low of 51p in 2009 to around 640p.
But we human beings rarely act-rationally with our money. On the contrary, we have a tendency to justify our actions by self-delusion. And the ever-increasing numbers going to university, despite the increasing cost and lack of graduate-level jobs, is just one more example.