Brains v brawn; is a university education worth the investment?

As this year’s undergraduates prepare for university and parents and grandparents unlock savings to fund degrees, we ask: Is university education worth the investment?

Firstly – let’s take a look at university education costs:

  • From September 2017 universities in England and Wales may charge up to £9,250 (~$11,940) per annum for tuition fees. Standard degree courses last for three years bringing teaching fees in at a total investment of £27,750.
  • The introduction of two-year fast track degree courses has not reduced this three-year course tuition price as they cost £28,000 in total.
  • Average living costs are estimated at £12,000 per annum, though London prices are considerably higher. But, taking average living costs the total living costs for a three-year degree are £36,000.
  • The student loan interest rate was recently increased from 4.6% to 6.1% meaning that new under-graduates would pay an additional £5,800 in interest on tuition fees alone.
  • Assuming a standard three-year degree course with interest on tuition fees at 6.1% plus average living costs for three years that brings the sum of the total investment to £69,550.

Obtaining a degree in England can cost more than obtaining one from a state funded university in America, but lower cost tuition fees are applicable to in-state American students only. Otherwise tuition fees at American state and private universities are higher, in general, than those of universities in England and Wales.
Europe is an option for EU and for EEA members where over 30,000 international degree courses are offered. The average annual tuition fee for a BSc degree in Europe is: €4,500 (~£4,160) and for an MA it is: €5,100 (~£4,715) or around half what English and Welsh universities charge. In Germany and also in the Netherlands courses are taught in English and the cost of living is lower than it is in England or Wales.
But to return to our initial question:

Brains v brawn; is the outcome worth the investment?
Put simply – yes – graduates do earn more than non-degree qualified people.
However…
How much more graduates earn (in comparison to their peers) and
How soon they start to earn more than their peers does not have such a simple answer.

In addition to the Teaching Excellence Framework (TEF) – launched by government to assess the quality of teaching delivered by UK universities; the Department for Education (DfE) measures ‘education outcomes’ by analysing the income tax returns for graduates five years after they have graduated. The government hopes to add weight to TEF benchmarking by using DfE analysis of graduate earnings. Currently the majority of universities charge maximum tuition fees regardless of the subject studied or of the prestige of the academic institution.

The Economist has appended further ‘study data’ including: subject studied, which university the graduate studied at, the location of the university, school exam results, family income, age and whether or not graduates attended private school to predict ‘expected earnings’ and match that with actual earnings.

Here are the main take-outs of the Economist findings:

  • Graduates that studied a maths related subject (economics, engineering, medicine, veterinary science and maths) earned more;
  • Universities that selected under-graduates that had performed particularly well at school and also used selection criteria produced better-paid graduates.

By way of example dentistry and medicine graduates earn £47,000 per annum five years’ after graduating whereas creative arts graduates earn £20,000 per annum. The most selective universities produce graduates that on average were earning £40,000 per annum five years after graduating compared with non-selective universities whose graduates were earning £20,000 per annum on average – this regardless of subject studied.

Based on the Economist’s university impact on earnings analysis there is good news for universities local to Chichester-based MarchwoodIFA; Portsmouth, Bournemouth, Brighton, Southampton Solent and Chichester universities were all ranked in the top 15 for boosting graduate earnings, with Portsmouth university taking first place.

And how does a university education play out over time?
The main factor influencing later-life income is a degree qualification. The UK still favours services industries – finance, media, management consultancy and tech; where intelligence impacts the quality of service. Over a quarter of degree qualified 65-69 year olds are in employment, compared with 14% of the same age group that did not qualify beyond secondary school. In fact degree qualified 65-69 year olds are more likely to be in employment that unqualified 16-24 year olds.

The gap between rich and poor disposable income in retired households, grew by one third between 1984 and 2014; the same pattern of a growing rich and poor gap is true of working age households. This would indicate that investing now in a university education for a young person may well be a worthwhile long-term ‘future earnings’ investment.

As always, we would advise you to seek financial advice from your IFA.

To arrange a consultation with Marchwood IFA please call 01243 532 635. We have specialists that are able to discuss specific options with you.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

To discuss insurances and equity release please ask to speak to Hamish Gairns.

To discuss mortgages & insurances please ask to speak to James Mayne.

 

*British pound conversions to USD and to EURO as at 25 Aug 2017 published exchange rates.