Graduate premiums

Tweet This report from an investment advice company makes for interesting reading.  It’s long been claimed that possession of a university degree leads to a boost in lifetime earnings, but the level at which this report sets that boost is much higher than previous estimates.  Government ministers have talked in the past about the premium being around £100,000, but this report suggests that it’s at six times that level – a cool £600,000.

Now, assuming that the recipients of this extra salary manage to avoid higher rate tax throughout their working lives, and that the whole amount is therefore ‘only’ to be taxed at the UK basic tax rate of 20%, that means that the average graduate will pay £120,000 more in income tax over his working life than the average non-graduate.

One of the main arguments for tuition fees is precisely that graduates earn more and should contribute more as a result; but these figures show the extent to which they already do that through the tax system.  Those of us who’ve argued that from the outset will feel vindicated by such a finding; why charge them an extra £27,000 on top of the extra £120,000 they’re already paying?

There’s a sting in the report as well though, because the figures I’ve used so far are based on averages over a working life.  The report also says that, unless a graduate starts his or her working life on a salary of at least £50,000 (and the average first year graduate salary is a mere £19,653 by way of comparison), then the terms of the student loans are such that the graduate is unlikely to earn enough to pay off the loan and added interest, and the government will end up writing off the greater part of the debt.

So, after saddling graduates with debts for the first 30 years of their working life, the government will end up writing off somewhere “between £30,649 and £64,935 for every full-time university student who graduates in 2015”.  That’s more than the three year cost of fees at £27,000, because of the interest added.  Far from transferring the cost of Higher Education from the state to the individuals, the Government will, to a significant extent, merely have deferred the expenditure for 30 years.

This isn’t so much reducing the deficit as putting part of the debt off balance sheet; hiding it away as an unstated liability for the future.  It may not be on the same scale, but it’s not too far removed from some of the accounting practices which Greece used to hide the true extent of its deficit.

I’ve never been convinced that the policy made sense educationally, or that it was fair; and I’ve also been concerned that it would deter bright students from less privileged backgrounds from studying.  If the figures in this report are anywhere near accurate, it suggests that the policy doesn’t even stack up in economic terms either.