Assessing the value of education

Recently I had an interesting conversation with a young student currently studying at an English university. Two years away from completing his undergraduate studies, he told me that he intended to travel the world and then settle down to a job that would have to pay less than £21,000 – permanently. He did not wish ever to cross the salary threshold at which he would have to repay his student loans. And why? Because once he allowed himself to be sucked into the game ‘in which my salary would have to chase my debts’ he would be in ‘negative educational equity’. He had no intention of going there.

While there may not be too many people planning their careers quite like this, the student’s assessment is not wholly out of line with what some commentators are saying, particularly in the United States. In a recent blog post Professor Mark J. Perry of the University of Michigan looked at the relative rates of inflation of property prices, consumer prices and higher education tuition fees in the United States. He found that since 1980 tuition fees had risen more than twice as fast as house prices. And yet, the inflation in real estate, as we know, created the property bubble and its horrendous economic effects. The question  he asks is whether the ‘education bubble’ is also about to hurst, creating a fresh set of very serious problems. This could happen where those in the education system are no longer convinced that the debts they take on in order to acquire a degree are greater than the financial benefits of being a graduate.

There are of course differences between the funding and costs of a university education in America and one on this side of the Atlantic; indeed in these islands the position varies between different countries. But as the costs rise – whether these are borne by the taxpayer or by the student or in some other way – some may ask whether there is an adequate repayment for the investment. Where this is asked more generally by society it can be answered in terms of the capacity of higher education to provide relevant skills and a civilising influence; where it is asked by individual fee-payers the answer sought is about the return on investment in terms of career development and salary.

If we slip into a situation where students walk away from higher education opportunities because they are not convinced they will provide an adequate return, then as a society we will be in trouble. If there is even a hint of a risk of this we need to look closely at our higher education strategy. The time to do that is now.

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5 Comments on “Assessing the value of education”

  1. brian t Says:

    We have a situation in which employers are demanding higher qualifications, than a decade ago, for the same positions. Often they’re positions that could be filled by someone with experience but no formal degree. I don’t know whether this is causing more people to go to university than before, or whether it’s an effect of an increased supply of graduates on the market – or both, but I don’t think this can go on forever.

    I think employers should be very wary of excluding people due to lack of qualifications, tempting as it may be as a way of quickly screening applicants. A lack of qualifications doesn’t mean someone is less intelligent, it can happen for other reasons, such as financial. I have personal experience of this, starting my first degree in my late 30s, and giving up a dead-end job at a multinational IT firm to do so. It was only a dead-end job because I was told, in no uncertain terms, that my lack of a degree meant that I could never progress inside the company. Never mind that people were going in to management who did not have degrees in management: they had letters after their names, and that was sufficient. (No, I won’t be going back to them!)

  2. Higher Education needs to face up to the fact that people do not attend for an education but for the qualifications they need to get a job. You can educate yourself extremely cheaply and well on the Internet. As Brian t says employers are driving this by requiring qualifications. I have recently been pondering what is driving this and my best theory so far is that it is driven by employment legislation that makes it difficult to hire and fire, so the qualifications give them some protection from making a big mistake in hiring. I’d appreciate some alternative theories on why employers are so hung up on qualifications. I have to say that if either of my kids told me that they wanted to go straight into work after secondary school, I would support them on that and encourage them to pick up skills as they went along. It would be far more cost effective (both cheaper and more effective).

  3. Al Says:

    Rightly or wrongly, fees will chase people away from third level.
    But we also expect 70%? of youth to attend third level also,,,,
    Much to tease out here..

  4. Martin Ryan Says:

    Brian, you might be interested in the signalling theory (from economics) if you have not heard of it already:

    Ferdinand, the Payscale website recently conducted some analysis for Bloomberg (, showing some interesting results:

    “According to a study conducted by PayScale for Bloomberg Businessweek, the value of a college degree may be a lot closer to $400,000 over 30 years and varies wildly from school to school.”

    “One big conclusion that can be drawn from the PayScale data is that college—and college alone—may not be the great investment it was once thought to be. Richard Vedder, director of the Center for College Affordability & Productivity in Washington, D.C., notes that with the college-educated accounting for a larger percentage of Americans, the bachelor’s degree has been devalued, and its ROI has taken a hit.”

    H/T: Kevin Denny:

    This criticism of college investment resonates with much of the sentiment in U.S. media on this topic. For example:

    1. 17,000,000 College-Educated Americans Are Wasting Their Degree On Menial Jobs:

    2. The Diminishing Economic Advantage of a College Degree:

    This perspective is endorsed by the afore-quoted (U.S.) Centre for College Affordability and Productivity:

    However, a quick google search also throws up the opposing view:

    1. Even for Cashiers, College Pays Off:

    2. Peter Thiel’s College Bubble Theory Gains Few Believers:

    The existence of a debate such as this (being apparently unresolved) must be highly confusing for prospective college students in the United States. The good news for students in the UK (and the individual you mention in your post – whose plan I fear may be welfare-reducing) is that the picture is a lot more clear-cut. According to Ian Walker and Yu Zhu (, there is no doubt that higher education is still a good investment in the UK:

    “The conventional literature… stops at examining what the impact of a degree is on gross earnings. We went several steps further: applying the appropriate arithmetic to get the net impact over your lifetime. From the model we were able to predict what a lifetime of earnings would look like for different sorts of graduates. We applied the tax system to it, and the loan repayments system, to work out how much money you had to spend each year of your working life…

    The strong message that comes out of this research is that even a large rise in tuition fees makes relatively little difference to the quality of the investment – those subjects that offer high returns (LEM for men, and all subjects for women) continue to do so. And those subjects that do not (especially OSSAH for men) will continue to offer poor returns.”

    In a nutshell, the most important thing for UK students to worry about is what subject they enrol in. More details are available in the full paper (recently accepted for publication in Economics of Education Review) here:

  5. Yes, Martin, qualifications would be a “signal” of relevant ability for a particular job, but it would strike me as a bit of a peacock’s tail in that it is a quite expensive signal.

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