Estimating the lifetime returns to undergraduate and postgraduate degrees

Lead Research Organisation: Institute for Fiscal Studies
Department Name: IFS Research Team


Higher Education (HE) choices are important for both students and governments. For students, debt on graduation from undergraduate degrees in England now typically exceeds £50,000, while postgraduate tuition fees alone can be more than £20,000 a year. Previous research has estimated that an undergraduate degree in the UK adds around £200,000 on average to a graduate's lifetime earnings (Walker and Zhu, 2011), but more recent work implies that these lifetime returns may differ dramatically by subject and institution choice. Meanwhile, the returns to postgraduate qualifications are still only poorly understood.

For governments, understanding the variation in lifetime returns to different degrees has implications for both the welfare of the population and the design of the HE system. The long-run impact of degrees determines the long-run cost of taxpayer subsidy of student loans, as well as having a significant impact on government tax receipts and benefit payments.

We have two overarching objectives: to increase understanding of the individual and social returns to HE degrees over the entire lifecycle, and to advance the academic literature on modelling earnings dynamics.
We will estimate impact of undergraduate and postgraduate degrees in specific subjects and from specific institutions on the earnings of graduates over the whole lifecycle using the newly available Longitudinal Education Outcomes (LEO) data. Treating HE as a single entity masks important variation in returns to different degrees, while focusing on early career outcomes misses the effect of different educational tracks on the trajectory of earnings throughout graduates' careers. By estimating the returns to specific degrees over the lifecycle, we will be able to show how these choices affect earnings at different ages; identify degrees which offer insurance against sudden changes in earnings; and show how degrees affect the resilience of graduates' earnings to recover from earnings onemployment shocks.

We will exploit rich administrative data to develop flexible models of earnings dynamics and use these to simulate the lifetime earnings of recent cohorts of graduates. In addition to the LEO data, we have been granted new access to tax records from earlier cohorts that provides more than 10 years of earnings history for more than 12 million people up to their mid-forties. This large dataset with long panels of earnings enables us to estimate more flexible models of earnings dynamics than has been previously possible. We will investigate how earnings persistence and resilience to macro-economic shocks vary across different types of students, thus extending existing knowledge of earnings dynamics and improving the accuracy of lifetime earnings simulations.

We will combine these simulated earnings profiles with the IFS's tax and benefit simulator and a model of student loan repayments to estimate the impact of degrees on lifetime tax and student loan payments and benefit receipts. This will significantly improve estimates of the wider social returns of different HE degrees, and allow us to estimate the impact the tax, benefit and student loan systems have on the private returns to different degrees.

Better measures of the returns and public finance impacts of different HE degrees will benefit both students choosing education routes and governments deciding how to target funding within the sector. Our work will also contribute significantly to the academic literature on the returns to higher education, by highlighting variation in returns to different undergraduate and postgraduate courses and by advancing understanding of wider returns by looking at differences in earnings dynamics. The lifetime earnings methodology we develop will also benefit future academic and policy-focussed projects using LEO to investigate the long-run effects of policies.

Planned Impact

Returns to Higher Education (HE) are of extremely high interest to a broad range of individuals and organisations. As such, we will use a range of approaches to make the work accessible to a wide audience, including: articles in academic journals; presentations at academic conferences and university departments and the publication of policy-focussed reports alongside press releases, tweets and interactive online tools.
When making the decision about attending HE, prospective students are faced with more than 1000 courses (subject-institution combinations) to choose between. A plethora of information is available to them through league tables, prospectuses and university advertising. However, they lack robust and accessible analysis about the potential impact of this decision on their lifetime earnings. Our findings would directly address this shortfall.
There is clear evidence that there is high demand for such information. A previous article by Britton for the BBC on this topic had nearly 3 million reads, while an additional infographic produced by the BBC based on our previous work on early career returns using LEO had more than one million visits. In parallel, the government opened a data competition for people to create a digital tool for prospective students to inform their HE choices: our lifetime earnings estimates would allow that tool to draw on more complete returns than just those achieved by age 28.
This topic of this research is a priority for the Dept. for Education. The Department spends a vast sum of money on HE each year and needs to justify this expenditure in terms of the impact HE has on graduates' lifetime earnings and on the public finances through student loan repayments, taxes receipts and benefits payments. Previous research in the UK has not been able to identify the effect of degrees in specific subjects or from specific institutions on these outcomes due to data limitations. Our work will therefore be highly relevant to the Department.
We already have close links with the post-18 education team at the Dept. for Education following the initial LEO project and other work. With our application, we include a letter of support from the Dept. for Education that outlines how valuable this research is to them. As the work progresses, we will present findings at the Department, as we have done on several previous occasions. This allows policy makers to understand the research properly, including its strengths and its limitations.
We will use this research to build on existing connections at HM Treasury (HMT) and Department for Business, Enterprise, Innovation and Skills (BEIS) who have a vested interest in government finance implications productivity effects of HE, respectively. Britton and Belfield have already had a number of meetings with HMT to discuss the potential for this type of analysis. Further, the UK Government Investments Department at BEIS is in charge of the sale of the student loan book. Our research will develop new methodology to make best use of this new administrative data which will provide new insights about the valuation of this asset. This is high on their agenda: Britton has already had a number of meetings with the UKGI team, and would use his contacts to inform them about the methodology used in this project.
Universities and related stakeholders
Our research will show universities the impact they have on shaping the careers of their graduates, highlighting the areas where they succeed and where they could improve. We have several links to the university sector, including Universities UK and Russell Group. Britton has appeared at several high profile policy events involving senior administrators, including a keynote lecture at the HEPI annual conference, a public RES debate and a Guardian round table. We will use these opportunities to communicate our research to important stakeholders and ensure they understand the implications of our findings.


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