Most students get a big pay-off from going to university – but some would be better off financially if they hadn’t done a degree

Going to university is a very good investment for most students. Over their working lives, men will be £130,000 better off on average by going to university after taxes, student loan repayments and foregone earnings are taken into account. For women, this figure is £100,000. (These and other numbers are in “discounted present value” terms, which means counting earnings later in life less than those earned earlier on. Without discounting, returns look much bigger.)

However, these average returns mask large differences across individuals:

• While about 80% of students are likely to gain financially from attending university, we estimate that one in five students – or about 70,000 every year - would actually have been better off financially had they not gone to university.
• At the other end of the spectrum, the 10% of graduates with the highest returns will on average gain around half a million pounds in discounted present value terms. Much of this variation is explained by the subject studied at university: students of medicine and law, for example, achieve very high returns on average, while few of those studying creative arts will gain financially from their degrees at all.

These are among the findings of new work at the Institute for Fiscal Studies (IFS) commissioned by the Department for Education that investigates the lifetime returns to undergraduate degrees using the Longitudinal Education Outcomes (LEO) dataset. We control for students’ prior attainment and family background to estimate the causal effect of going to university on earnings and employment.

More on the report

This report expands on previous IFS analysis using the LEO dataset. While previous work looked at the impact of undergraduate degrees on earnings at age 29, this work uses newly-linked additional LEO data on earlier cohorts to consider the impact on earnings over the whole life cycle.

We look at how much students earn and how much they pay in taxes and towards their student loans over their whole careers in order to get at the lifetime net financial benefit to the individual. We also calculate the benefit of degrees to the taxpayer, taking into account the government cost of providing student loans, as well as any changes in tax payments.

This study only looks at financial returns. Other personal and social benefits may be as or more important. We also only consider the effect of each student’s choices on their own earnings holding constant the choices of others, limiting the scope for using these results to predict the effects of major changes to the higher education system.

The key findings include:

• The average net lifetime earnings gain from undergraduate degrees is around £130k for men and £100k for women in discounted present value terms. For both men and women, this represents a gain in average net lifetime earnings of around 20%.
• The subject studied at university is hugely important. Net discounted lifetime returns for women are close to zero on average for creative arts and languages graduates, but more than £250k for law, economics or medicine. Men studying creative arts have negative financial returns, while men studying medicine or economics have average returns of more than half a million pounds.
• However, studying a subject with high average returns is no guarantee of high returns. While average returns to law and economics are high, many students will see much lower benefits from studying those subjects, and a few will see much higher returns. In contrast, subjects such as education and nursing do not have very high returns on average, but women who study these subjects almost universally achieve positive returns.
• Overall, we expect 85% of women and around three-quarters of men to achieve positive net lifetime returns. This means that around one in five undergraduates would have been better off financially had they not gone to university. At the other end of the spectrum, the 10% of graduates with the highest returns will on average gain more than half a million pounds in discounted present value terms.
• Financing undergraduate degrees is expensive for the taxpayer, but on average increased tax revenues more than make up for it. Overall, we estimate that the expected gain to the exchequer of an individual enrolling in an undergraduate course is around £110k per student for men and £30k per student for women.
• However, these gains are driven mainly by the highest-earning graduates. We expect the exchequer to gain more than half a million pounds on average from the 10% of graduates with the highest exchequer returns, but to make a loss on the degrees of around 40% of men and half of women. This means that nearly half of all students receive a net government subsidy for their degrees, even after tax and National Insurance payments have been taken into account. 

Jack Britton, co-author of the report and an Associate Director at IFS, said:  

“This work highlights how important the thirties are for graduate men. Rapid earnings growth of male graduates in this period has a large positive impact on their average return to higher education such that three quarters of men end up better off as a result of having done a degree. However, even when looking over the whole life cycle, around a quarter of men have negative financial returns to undergraduate degrees.”

Ben Waltmann, co-author of the report and a Research Economist at IFS, said:

“The exchequer gains a lot on average from higher education, despite the high costs of writing off unpaid student loans. That is mainly because high-earning graduates go on to pay an awful lot of tax. But this analysis also shows that the government makes an overall loss on financing the degrees of nearly half of all graduates. These losses are concentrated amongst those studying certain subjects. For creative arts, for example, the losses are substantial. This need not mean that the government is misallocating funds, but it is important to be aware of the costs involved.”