How do young people make decisions about going to university?

For thousands of young people every year, the decision of whether to go to university is one of the biggest they will face. Over the past five decades, numbers attending university in the UK have been rising, and with that, a burgeoning number of courses have emerged. With thousands of courses at over 100 institutions, it’s more important than ever how students make decisions about going to university and what to study.

Why go to university?

Traditional economic theory tells us that students will rationally weigh up the costs of attending university against its expected benefits to decide whether to pursue a university degree. One part of these costs is financial: tuition fees, costs associated with living away from home and spending on books and equipment. There is also what economists call the ‘opportunity cost’ of attending university, that is, the wages and experience that could be gained by working instead of continuing with formal education.  

The key financial consideration on the benefit side of the equation is the future earnings one can expect to earn with a university degree. Although it varies by degree, research estimates that, on average, female students attending university in the UK will be £100,000 better off over their lifetime, while for male students the figure is £130,000. Among other things, this is down to the additional skills and knowledge acquired during university, which make for a more productive employee, as well as the social networks and connections that can lead to higher paid job opportunities. 

Of course, it’s not all about the money. There are many non-monetary benefits to university - people may value the opportunity to travel to a new place, to meet new people and to socialise. Many people even meet their future spouses at university.

You’re not alone: government intervention in higher education

This weighing up of costs and benefits isn’t the whole story however. As well as the private benefit to the individual, there are also wider benefits to society from having more educated people. In other words, education generates what economists call a `positive externality’. Highly educated populations are more productive and innovative, driving economic growth and invention that benefits all of society (a timely example of this are the scientists who developed the Covid-19 vaccines). University educated individuals are also less likely to commit crimes and are more likely to make healthy lifestyle choices which lowers the cost to society of dealing with social ills such as crime or obesity. 

If universities only made their students better off, it would seem reasonable for the costs of going to university to be paid by students. However, as university generates wider societal benefits there is a case for sharing the costs across taxpayers via government subsidisation. Indeed, the UK government intervenes to subsidise university education in two key ways: first, it pays universities directly to cover research and the teaching of `high-cost’ courses (such as laboratory-based subjects); second, it provides loans to students to go towards the up-front expenses of tuition fees and living costs. 

On the face of it, a loan doesn’t seem like a subsidy – after all, a loan has to be repaid, and with interest. However, certain features of the UK student loan system mean that not all the money students borrow is repaid. The student loan system acts as insurance for students investing in education: if the investment pays off and they go on to earn a good salary, graduates gradually repay the loan; if instead graduates can only find low paid jobs, they only pay back what they can afford. In some instances (those earning below £27,295 a year) this will be zero. The loan is also written off after 30 years for all students. These features of the student loan system mean it is estimated that around 40% of students do not fully pay off the loan. As it is the government that picks up the bill for any money that is not repaid, student loans are effectively subsidised by the taxpayer. In this way, the system insures against the risk of low earnings and encourages students to go to university without worrying about being unable to make high debt repayments if they are unlucky in the jobs market. 

Not everyone faces the same decision problem

Despite government support, financial considerations (both real and perceived) can still be a barrier to attending university. Though the student loan system is designed to provide anyone who wants to go to university with the means to do so, some students still struggle to afford the day-to-day costs of university life or simply cannot afford not to start earning immediately after finishing school. While many universities offer fee waivers, cash bursaries and reduced accommodation costs to those on low incomes, they are not always well publicised and are not guaranteed at the point of application (uncertainty about whether they will be eligible for this assistance may deter students from applying). 

Misperceptions about student finance can also deter individuals from applying to university – rising tuition fees and interest rates loom large in media coverage of the student finance system yet reports often fail to mention features of the system that protect graduates from being burdened with debts they cannot afford. 

Other deterrents are non-material. Some students (often from higher income families with university educated parents) have access to information about the advantages of going to university and are supported through the application process by family members and school. In comparison, students whose parents did not go to university may lack the information and networks required to navigate the university application process. These students may also feel that university is ‘not for them’ or experience other psychological barriers to attending, particularly if few in their family or local area engage in higher education. 

In the presence of these barriers, students may underestimate the benefits of going to university or overestimate the costs (or both), resulting in unequal access to education. As these barriers disproportionately fall on disadvantaged students, we see large differences in access to university based on family income. Given that most degrees offer a path to higher income, this has negative implications for social mobility and income inequality.

Just as important is where you go

Just as important as the decision of whether to go to university is what to study. The income a graduate can expect to earn varies substantially across institution and subject. In the UK, a graduate of economics, medicine or law can expect to earn between £250,000-£500,000 more over their lifetime than someone who did not attend university, while the return to studying creative arts or languages can be close to zero relative to not going to university. Similarly, graduates of Russell Group universities (a group of research-intensive, selective universities) tend to earn much more than students attending less selective institutions. While, on average, students gain from going to university, there are also courses with negative earnings returns. For instance, it’s estimated that the average male student studying social care or creative arts will be financially worse off than someone who did not attend university.

If some courses offer zero or negative returns, why do students take them? One answer it that they are motivated by non-financial benefits. Indeed, when committing to a three-year course it’s important that students enjoy their chosen subject and university. Another reason, however, is that students don’t have access to accurate information about earnings returns and therefore overestimate the benefit of these degrees. In a similar vein, evidence shows that students from families with no experience of university are more likely to underestimate the benefits of going to a selective institution. Elite institutions may also feel daunting or unwelcoming, particularly if one’s own social class or ethnicity has been historically underrepresented. 

These information asymmetries and barriers contribute to substantial differences in the student body across universities. Private school students (who tend to be wealthier) are overrepresented in the university sector as a whole and particularly at selective universities. For instance, at Oxford and Exeter between 30% and 40% of students are privately educated despite private school students making up only 7% of school pupils nationally. Some of these disparities can be explained by private school pupils achieving higher grades, but even amongst students with similar academic records, the privately educated are more likely to attend selective universities. In addition, students from ethnic minority backgrounds and female students are more likely to attend university overall but are less likely to attend selective institutions.  

Come autumn, a fresh cohort of students will once again face the decision of whether to apply to university and what course to study. It will be important that they are armed with the right information and support to make these critical choices.