Six years ago, IFS estimated the impact of undergraduate degrees on lifetime earnings.
The findings of what was a methodologically complex piece of work, riven with assumptions and caveats, was that an earnings gap between graduates and non-graduates persisted (at about 20 per cent, or £100k on average over a lifetime for women and £130k for men). Eighty per cent of those attending university earned more than they did if they had not – but there were variations based on subject of study, and provider group.
It’s not an exaggeration to say that the impact of undergraduate degrees on lifetime earnings made a lasting impression on thinking about higher education policy and finance. But as time has passed, some of the issues that the more intent readers of the fine print have been raising since the first report have become more material.
The eagerly awaited 2026 sequel (entry two in the lifetime earnings cinematic universe!) focuses in particular on one criticism. The initial comparison with non-graduates included a lot of people who would never have gone to university anyway: what would earnings gaps look like if we think only about people who had a chance (five Cs or above at GCSE, plus some level 3) of attending?
Life chances
The answer is a surprisingly robust defence of the value of higher education. On average the raw lifetime earnings gap for those aged 37 in 2022 who went to university, and those who could have but did not, was £290,000. And this includes a 3.5 per cent discount rate (applying Treasury Green Book rules) that lowers the value of earnings in later life – a point where the earnings difference between graduates and non-graduates is most acute.
On average, graduates earn more than non-graduates – even when we adjust for differences based on background characteristics or prior attainment. And on average, the exchequer also sees a substantial lifetime return from state investment in educating an individual to graduate level: from income tax, national insurance, and loan repayments.
When we factor these costs in, the lifetime earnings premium for men was £109,000, while the equivalent figure for women was £90,000.
It would be impossible to envisage a system where we could guarantee every graduate would see a premium, and the government would win on every investment in higher education teaching. Life, and risk, does not work like that for anyone. IFS finds that the exchequer would make a loss on around 40 per cent of degrees – and 20 per cent of men and 30 per cent of women experience a net earning detriment.
The question here is whether we can track causality, and definitively say that some courses are no good. In the years since the initial report hardly an academic year has gone by without a ministerial promise to crack down on “low quality courses”: the implication being that these are easy to identify and map neatly to the complex mix of demographic and industrial factors that determine salary. Beyond this, we can argue that salary itself is just one aspect of the benefit that individuals and societies get from higher education – and that basing the entirety of post-18 education and skills planning solely on what the aggregated employment market will bear is not the act of any sensible nation.
Causality and making assumptions
Economists and medics earn more than linguists and artists. Students with lower prior attainment earn less than students who got very good A levels – and prior attainment is very often a proxy for prior economic advantage, as is your choice of institution. Men earn more than women. None of this will come as a surprise to anyone with experience of graduate outcomes data – and while IFS modelling does lend a tangibility to such findings that can be expressed in financial terms (kind of a secular Judgment Day reckoning based on multiple longitudinal datasets) it doesn’t really change the game in any unexpected ways.
The big balance sheet item the exchequer secures from graduates is an increase in income tax (and national insurance) per capita when compared to non-graduates. Tax receipts, over a lifetime, increase by an average of around £136,000 per graduate, something that has been amplified by government decisions to freeze thresholds over parts of the period in question. The methodology applied to maintenance loans and repayments (using the level 5 rules, incidentally) means that these aspects wash their face but very little more.
It is likely that IFS was expecting to find a much narrower gap between the earnings of those who attended university and those who had the qualifications to do so and chose not to. This comparison (rather than a straight fight between the graduate and the non-graduate as we saw in the 2000 iteration) is what drives the headline figures presented above, and it still nets out that university represents a substantial win if you got decent GCSEs.
An increasing number of young people enter university with less than stellar prior attainment, and some voices have suggested that these students would have been better off choosing another route. Though the figures are lower than for more conventionally prepared peers, there is little evidence to back that up – the median lifetime return for students with no more than four Bs and four Cs in their top 8 GCSEs is still £62k, with women in this group seeing a more pronounced earnings premium than men (largely due to lower earnings among non-graduate peers with similar qualifications).
DK’s discount warehouse
None of these figures refer to the lifetime earnings of actual existing graduates – we simply do not have the data available to trace an entire lifetime of post-university experience for a meaningfully recent cohort. IFS uses real data up to the age of 37, and extrapolations drawing on the experience of previous cohorts (based on HESA and HMRC data for the first ten years for graduates, and Labour Force Survey data elsewhere) after that.
These raw figures are made comparable using CPI inflation, and are then reduced using the Treasury Green Book discount rate of 3.5 per cent for the first 30 years and 3.0 per cent thereafter. This latter aspect massively reduces the calculated individual and exchequer returns: without it, net individual lifetime earnings would be £256,00 for women and £371,000 for men. The Green Book numbers represent the standard approach to assessing the costs, risks, and benefits of investment decisions; it is not clear that any approach that applies a discount to earnings in the years when graduates are likely to be making (and contributing) more than their peers is fit for purpose.
The Green Book itself is undergoing the latest of a series of reviews, in response to wider concerns about underplaying the value of long-term investments based on a designed-in emphasis on the value of spending that sees immediate return. The sheer scale of the gap between the discounted and undiscounted headline figures suggests that this may not be the best approach.
The headlines and beyond
On the face of it, the cohort we last looked at in 2020 have done slightly worse than IFS predicted at the time, over a time period that included a global pandemic, a cost of living crisis, and massive geopolitical instability. But there’s nothing here that supports the revision of the hypothesis that most graduates are financially better off for having experienced higher education, or that the nation is better off for making an investment that – by its very nature – addresses wider aspirations than the purely financial.
IFS itself is commendably clear that, while counterfactuals are used to examine potential choices that applicants may have made, they can’t tell us anything about an alternate reality where HE is a different size or shape, or if people who had decided against HE decided to do so. In a hugely complex system, any change can have unexpected effects.
As an example, the last two years of data for the 2002 cohort cover 2022-23 and 2023-24, a period that saw a peak in inflation, this increases the average lifetime return for men by £26,000 (and by £6,000 for women). Nobody can blame higher education for the Liz Truss mini-budget, but this brief period has an unexpectedly large impact on projected lifetime earnings.
There is also a temptation to read the projected outcomes of the 2002 cohort as indicative of more recent cohorts – again IFS carefully notes that the composition of the graduate population in terms of subject-institution choices (interestingly, more students are studying classically “high earning” subjects) and entry qualification has changed substantially since then. We also know (but can’t see the full extent of in the data prior to 2022) that the Russell Group (again, linked to high earning graduate trajectories) has expanded in recent years. The suspicion is that lifetime earnings may have lowered further, but this is based on some fairly broad assumptions, the full conclusion is one of insufficient evidence.
This is, to be clear, good research. But it is necessarily limited by a lack of available data, and relies in part on assumptions that are at least questionable. IFS is clear that while this release is instructive, it is not by itself cause for changes in higher education funding or access policy.
Which is a pity, as the Department for Education has released alongside this research an indication of plans to limit student finance access to those with a good GCSE in English, and – yet another – clamp down on “low quality courses”. Expect a consultation later this year.
