We look at the value of a university education, tell you which degree is the best value and explain the premium you earn for post-graduate training.
Would you pay £9,000 a year for an undergraduate education?
That’s how much most universities are set to charge after the Government abolished the cap on tuition fees to avert a higher education funding crisis.
The move means many graduates will leave university at least £27,000 in debt – and that’s if they go to an average university and don’t take on any further debt to pay for their living costs.
In reality, most will leave with around £32,000 of debt, if not more.
Which begs the question: is it worth it? How great is the financial benefit of attending university? Do degrees always pay off in the long run, despite the costs associated with them? And what are the best and worst paid subjects to study?
All the comparisons we make in this article are between graduates and those who could have gone to university but didn't (i.e. they had two or more A levels or equivalent qualifications).
Average graduate earnings
While graduates often start off earning a similar amount to non-graduates, this changes quickly over the years.
For example, in 2008 (the latest statistics we could find), a typical 21-year-old graduate earned just £17,472 a year, while a non-graduate with A levels earned £15,912 a year.
However, the typical 33-year-old graduate earned £37,960 a year, while the typical 34-year old non-graduate earned just £27,768 a year.
Source: Prospects.ac.uk
Average extra lifetime earnings
On average, graduates earn an extra £160,000, or 23% throughout their lifetime (which is even greater after tax). That's an extra £3,600 per year, compared to non-graduates. That's despite increasing numbers of young people getting degrees: a third now do, compared with just 15% 20 years ago.
Subject matters
It's no surprise that there are wide variations in average earnings depending on the subject studied. Arts graduates earn just £35,000 extra (compared to non-graduates) whilst medicine graduates earn a massive £340,000 extra, on average, during their lives.
Average extra earnings for graduates by subject studied
Data from 2005 and 2007
Earnings growth steady in early years
Regardless of which degree you take, earnings grow at a constant rate in the first few years. However, they typically balloon in the mid-years in some subjects, such as chemistry.
Averages can be misleading...
...to say the least. There is massive variation within each field, which explains why some people get irate at so-called 'average earnings'. One graduate working in the same field or even the same job as another can easily earn one-third less than some colleagues.
Public sector benefits less visible
Most graduates in the public sector seeing earnings statistics over the years will probably conclude they are unrealistic, but in return for a lower income most get greater job security and pension benefits.
Do degrees always pay off?
No, not always. The evidence is limited, but it seems that men with arts degrees usually earn slightly less than their counterparts who chose not to go to university. A case of those who can, do - perhaps?
It's also true that, without a degree, you can still earn more than the average graduate. Those taking training places from one of the big accountancy or law firms, for example, can circumvent the need and cost of a degree.
Also, degrees are expensive. The average student leaves university with debts totalling £15,700 and the current average graduates starting salary is just £22,300. Even if your salary goes up every year by almost 5%, it will still take you around 12 years to pay off your debt, which will cost you even more than you think.
Finally, it's worth bearing in mind that 20% of students drop out of university and a third of graduates end up with non-graduate jobs.
On the plus side, graduates are less likely to be unemployed.
Degrees are more beneficial for women
On average, research shows that women gain greater financial benefits from a university education than men do. Women who don't go to university tend to earn a great deal less than men who don't go to university.
However, women's incomes, on average, are boosted more by a degree to make it a more level playing field. To take an example, men's incomes are boosted 43% by an economics degree, but women's are boosted 63%.
Similarly, men from poorer backgrounds also benefit more from university than men from affluent ones.
Discrimination, it seems, is more difficult for employers when you've got a degree.
There is still discrimination towards graduates
However, there is still a big difference in average earnings between male and female graduates, with men earning at least £14,000 more over their working lives. (We suspect it's quite a bit more on average, but unfortunately there seems to be little research on this topic. If you know a better statistic, please share it on lovemoney.com using our comments section.)
Law comes top
This is the most important section in the article. Whilst medicine earns more, it also costs more. What's more, you lose out on income, because you're studying (and so not working) for more years. When you factor all these things together, law is the better investment with an average rate of return of more than 17% per year:
The annual rate of return on your degree
The average rate of return for all degrees is 12.1% per year. This makes a degree the best possible investment (on average), trouncing the stock market or property over the long term.
Surprisingly, medicine has a lower return than the average at 11.6% (although dentists were excluded from the figures) meaning that perhaps we focus too much on doctors' wages and not enough on support staff.
However, weI suspect that these figures (from 2005) will be out-of-date now. 130,000 doctors earn now, at the very least, £13bn between them, with many earning as much as £380,000 per year.
Also the figures in the above table may come down now that the cost of university is going up (to an average £23,000 for students starting this year, it's estimated). However, some researchers believe the reverse will happen!
The post-grad premium
Some - but far from all - employers offer a premium for those who go beyond a Bachelor's degree. If you're lucky enough to get work for an employer that pays such a premium, those with doctorates could earn an extra £6,000 from the start. Those with master's degrees could earn an extra £4,000 and those with an MBA an extra £12,000 (although very few employers offer a premium for MBAs).
That's a lot of statistics. You may need a degree just to take them all in!