Estimating the lifetime returns to undergraduate and postgraduate degrees
Lead Research Organisation:
Institute for Fiscal Studies
Department Name: IFS Research Team
Abstract
Context
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.
Aims
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 or unemployment 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.
Benefits
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.
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.
Aims
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 or unemployment 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.
Benefits
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.
Students
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.
Policymakers
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.
Students
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.
Policymakers
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.
Publications
Britton J
(2020)
The earnings returns to postgraduate degrees in the UK
Britton J
(2022)
How much does degree choice matter?
in Labour Economics
Dearden L
How much does degree choice matter?
| Description | (1) The lifetime returns to higher education. We have estimated the lifetime returns to higher education: we estimated that on average, a degree is worth around £110,000 for students at the point of entry to university. This is in discounted present value terms, and the figure is slightly higher for men then it is for women. We allowed these returns to vary by the characteristics of students, the institution they attended, and the subject they studied. We find that around 80% of students benefit financially from going to university. Of the 20% who do not benefit, most literally earn less as a result of going to university. The others earn more, but the benefits in terms of higher earnings are outweighed by the costs of student loan repayments. We focus on how the returns vary by subject and show that there is substantial variation. Men lose an average of £100k by studying creative arts - subjects like graphic design and drama - but men who opt for economics and medicine gain more than £500,000. For women, studying the creative arts on average makes little difference to their lifetime earnings. But those who choose to study medicine gain £340,000 on average, and those who study economics £270,000. Law, maths, and business also offer high returns for both men and women, with average extra income between £140,000 and £260,000. We also estimated the taxpayer returns are around £100,000 for men and around £30,000 for women. The figure is higher for men, because men earn more than women on average, and higher earners pay more in tax and student loan repayments. About one in five graduates earns less for both themselves and the taxpayer, as a result of doing a degree. However, the taxpayer also loses out from the degrees of another 28% of students - so, nearly half of all graduates in total. The main reason is that the government makes a substantial loss on the student loans of lower-earning graduates, as they will only pay back a small fraction of them. (2) The lifetime returns to higher education by socio economic status and ethnicity Average returns to undergraduate degrees at age 30 are positive for people from all socioeconomic and ethnic groups we study, but there is substantial heterogeneity across groups. Returns are especially high for privately-educated graduates, whose median earnings at age 30 are the highest of all groups. However, we find that the groups with the lowest graduate earnings, such as Pakistani students or state-educated students from the poorest families, also have relatively high returns from going to university. The reason is that the earnings prospects of these groups are very low on average if they do not attend university. Some but not all of the differences in returns can be explained by variation in subjects chosen and institutions attended. Subject choice explains little of the variation in returns by socio-economic status, but a substantial amount of the variation in returns by ethnicity: Asian students systematically choose more lucrative subjects than White British students. Conversely, institution choices can partly explain why private school students get higher returns from university than those who attended state schools; however, institution choices do not explain much of the variation in returns by ethnicity. (3) The returns to postgraduate degrees For both men and women, masters and PhD graduates earn more on average than those with only an undergraduate degree, while PGCE graduates earn less on average. In particular for men this last gap is large, with PGCE graduates earning around £38,000 on average at age 35 compared with nearly £51,000 for those with only an undergraduate degree. For both genders, earnings growth through the 30s is largest among undergraduates and PhD graduates and smallest for PGCE graduates. Once we control for differences between students, the earnings gap between undergraduate and masters and PhD graduates drops significantly: we estimate returns of 2% (women) and -2% (men) for masters and 8% (women) and -9% (men) for PhDs. For PGCEs, accounting for differences in background and undergraduate attainment has the opposite effect, primarily due to PGCE students having studied undergraduate subjects with lower earnings potential on average. We get a final estimate of the returns to PGCEs at age 35 of -2% for men and +1% for women. Our returns estimates are much lower than previous evidence, and we believe this is due to us having much high quality data. However although the average returns are low, we do find some evidence supporting the case that postgraduate degrees reduce the risk of poor earnings outcomes, which might still make them attractive for prospective students. We also find that returns are clearly positive in some subject areas, including engineering, law, economics and business. (4) Which universities are best for social mobility? We document "mobility rates" for each university, subject and course in England. Mobility rates are the product of access rates and success rates, or put differently they are the share of students from poorer backgrounds (measured by free school meal eligibility) multiplied by the probability that a student from a poorer background makes it to the top of the income distribution. This gives a sense of how much each individual university, subject and course is contributing to mobility. We find that many Russell Group universities have high success rates but admit very few FSM students, leading to below-average mobility rates. Queen Mary University of London (QMUL) is a remarkable exception, performing extremely well on both metrics and topping the overall mobility rankings. Law, computing and (especially) pharmacology are the best-performing subject areas. At the course (subject-institution) level, computing, law and economics at London-based institutions dominate the top of the rankings. We conclude by showing that progress in access has been disappointingly slow in the past 15 years. (5) London Calling? The geographical mobility of graduates. We study the link between higher education, geographical mobility and outcomes for individuals and regions. First, we show that higher education is associated with greater geographical mobility. This finding holds even conditional on factors such as socio-economic status, area of origin and attainment in school. Second, we show that graduates move to places with better labour market opportunities. Graduates tend to move to large cities, especially to London. Around a quarter of graduates who move go to London. In contrast, non-graduates do not disproportionately move to London and other large cities. Third, ethnic minorities and those from low socio-economic backgrounds are less likely to move, and the effect of higher education on mobility is much weaker for these groups. Fourth, there is a premium to moving. Male graduates who more earn around 10% more at 27 than otherwise similar graduates who do not move. For women, the estimated gain to moving is 4%. Moving premiums are surprisingly similar across SES and ethnic groups, with the exception of Asian women, for whom movers earn less than stayers. Finally, we show that patterns of mobility exacerbate regional inequality in skills. Many cities that gain large numbers of graduates through migration - such as London, Brighton, Leeds and Bristol - already have relatively high levels of higher education participation. In contrast, many places with low levels of higher education participation, such as Grimsby and Wisbech, further lose graduates through migration. (6) How much does degree choice matter? This paper investigates how returns to higher education vary at the individual degree (subject-institution) level. Conditioning on a rich set background characteristics, it finds substantial variation in returns, even within subject, across universities with very similar selectivity levels, suggesting degree choices matter a lot for later-life earnings. Selectivity is weakly related to returns through most of the distribution but strongly positively correlated at the top end. Other than selectivity, returns are poorly correlated with observable degree characteristics, which has implications for student choices and the incentives of universities. This paper is under Revise and Resubmit at Labour Economics. |
| Exploitation Route | Our estimates can be used by policy makers thinking about the design of the higher education system. There is significant policy interest in looking more closely at "value" within higher education, and this work contributes significantly to that debate. |
| Sectors | Education |
| URL | https://www.ifs.org.uk/publications/14729 |
| Description | Our paper on the lifetime returns to higher education was cited in the government announcement in February 2022 of major reforms to the student loan system (see bit.ly/jb22slpaper). It was used as evidence that investment in higher education is still very good for the vast majority of individuals. The same paper has also shaped additional and ongoing government research. For example, in a paper estimating the returns to different GCSE qualifications (see Hodge, Little and Weldon, 2021), the government cite our work many times and note that they leaned heavily on our methodology. Finally, our paper on the geographical mobility of graduates was cited eleven times in the governments' recent levelling up white paper. |
| First Year Of Impact | 2020 |
| Sector | Education,Government, Democracy and Justice |
| Impact Types | Societal,Economic,Policy & public services |
| Description | Academic Seminar on the returns to postgraduate degrees |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | Local |
| Primary Audience | Other audiences |
| Results and Impact | Academic Seminar at the Institute for Fiscal Studies |
| Year(s) Of Engagement Activity | 2020 |
| Description | ESRC Festival of Social Science |
| Form Of Engagement Activity | Participation in an activity, workshop or similar |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Panel event with audience discussion "What is a degree worth? Estimating the returns to undergraduate and postgraduate degrees". This included three talks on the lifetime returns to undergraduate degrees, the mid-career returns to postgraduate degrees and the earnings outcomes from adult qualifications below degree level. It was followed by a Q&A. Note that this had to be an online event because of COVID19. The event was free to watch on the IFS website and more than 100 people tuned in. There was a good amount of audience engagement for the panel discussion at the end. We received a follow up from analysts at BEIS who were very interested in the findings from the postgraduate returns and wanted to discuss the implications for their own research into the importance of grant support for postgraduate students. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://www.ifs.org.uk/publications/15171 |
| Description | Interview for National News |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | Britton was interviewed on the BBC News Channel on Sat Feb 29th for around 5 minutes at about 10.20am. |
| Year(s) Of Engagement Activity | 2020 |
| Description | Least advantaged students gain a lot from going to university - compared to what they would earn if they didn't |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | IFS press release |
| Year(s) Of Engagement Activity | 2021 |
| Description | Press Conference |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | Britton presented for half an hour at a press event at IFS and then took questions for a further half an hour. Around 15 journalists and 15 policymakers from the Dept for Education attended. This achieved coverage of the work in almost all of the national newspapers on February 29th 2020, including the Times, the Financial Times, the Guardian and the Telegraph. |
| Year(s) Of Engagement Activity | 2020 |
| Description | Press Release of Postgraduate Returns Work |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | A press release detailing the findings from our report on the returns to different postgraduate degrees was sent to the wide IFS network of media and relevant bodies. The IFS received several press calls as a result of this release and the report was subsequently covered in The Times 17/09/20 "Postgrad degrees are not the path to a bigger salary"; The Guardian 16/09/20 "Women gain more than men for a master's degree"; The Daily Telegraph, 17/09/2020 "Arts graduates earn less by 'doubling down' on a masters"; The Daily Telegraph Online, 16/09/2020 "Men who have taken a Masters degree in English earn 30 per cent less than if they had not, data shows"; Times Higher Education Supplement (Web), 16/09/2020, "Want a postgraduate degree that ups your salary? Choose carefully"; FEnews.co.uk (Web), 16/09/2020,"Postgraduate degrees offer better labour market returns for women". Direct quotes from Britton or van der Erve were included in many of these articles. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://www.ifs.org.uk/publications/15018 |