UK degree returns shrink as taxes, weaker earnings cut graduate gains

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UK degree returns shrink

Highlights

IFS revises lifetime graduate returns down to £109,000 for men and £90,000 for women from the 2002 GCSE cohort, both materially below 2020 estimates.
About a third of the decrease in degree returns results from policy changes to tax, student loans, and maintenance grants, with the rest driven by weaker-than-expected graduate earnings amid economic shocks.
IFS estimates a quarter of graduates, and up to 40 percent of men with lower GCSE scores, may now be worse off financially for attending university compared to non-graduates.

IFS analysis revises lifetime graduate returns

As reported by the Financial Times and the Institute for Fiscal Studies, the updated calculations show men from the 2002 GCSE cohort can expect a lifetime gain of £109,000 from their degree, compared with £90,000 for women. The think-tank says earnings paths for younger graduate cohorts look "strikingly similar", suggesting the weaker return is not limited to a single age group.

Its latest estimates are materially below the 2020 study, which put lifetime returns at £168,000 for men and £126,000 for women in current prices. Medicine and economics continue to offer the highest financial returns, but the IFS says returns across most subjects are lower than previously estimated and outcomes vary widely between individuals.

The study also indicates a larger share of graduates may not recoup the cost of their degree than the IFS estimated in 2020. It says a quarter of graduates can expect to be worse off because of their degree, rising to as much as 40 per cent among men with lower GCSE scores who go on to university.

Policy changes and labour market shifts reshape the outlook

About a third of the decline in the headline lifetime return stems from policy changes on tax, student loans and maintenance grants, according to the IFS, meaning a bigger share of the gains from higher education now flows to the Treasury. The larger factor, however, is that earnings for graduates in the 2002 GCSE cohort have fallen short of what the think-tank expected since 2020, reflecting the pandemic and the cost of living crisis.

At the same time, average earnings for non-graduates have been supported by a higher minimum wage and lower worklessness among women. Kate Ogden, senior research economist at the IFS, says the findings suggest the financial pay-off from attending university has held up relatively well despite earlier economic shocks and concerns that AI could hit graduate jobs.

The IFS says its estimates provide a stronger guide than government measures of the "graduate premium" because they account for factors such as GCSE grades and family background, and compare graduates with similar peers who did not attend university. Nick Harrison, chief executive of the Sutton Trust, says university remains the most reliable route to upward mobility for most students, even if it is not a guarantee of financial success.

The findings arrive as the government outlines legislation to limit the growth of courses that deliver consistently poor returns. Skills minister Baroness Jacqui Smith says too many franchised and poor-quality courses are "selling the dream then leaving students in the lurch", while urging prospective students to choose degrees carefully rather than enrolling by default.

Our earlier coverage of the canceled SAVE student-loan repayment plan explained that millions of U.S. federal borrowers may be forced to switch into new repayment options from July 1, as a court motion seeks to pause automatic transfers during ongoing litigation. We noted concerns that borrowers could end up in significantly higher-cost plans if they don’t choose an alternative within the notice window, increasing the risk of payment shock and repayment problems.

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