Are university degrees an expensive mistake?

Students at Soas protest at government plans to sell off loan debts to private companies. Photograph: Pete Riches/Demotix/Corbis

It's no surprise a growing number of parents are worried their kids' degrees were an expensive mistake. Once upon a time students could rely on their degree to give them a leg-up to a decent career. But times have changed. Now young people are spat out into a thick sludge of economic misfortunes, and they face a jobs market in which their impressive CVs might not even get them a shop job.

Our higher education system is a mess, and its high time the value for money of degrees was brought into the spotlight for inspection. Poor value degrees pose a real threat to young people's future financial security. It's an uncomfortable message that careers services need to start spreading – because although politicians would rather brush it off, this generation simply can't afford to let it slide.

One of the difficulties with this conversation is identifying who is and who isn't getting good value from their degrees. I graduated from UCL in 2010 and would now consider my degree to have been decent value for money. The teaching was good and although my course (geography) isn't relevant to my career, I don't think I'd have become a financial journalist without it. However three years into work, I still have more than £20,000 of my student loan outstanding, even though I repay around £150 every month. This isn't unusual for a graduate my age with a decent job and a full loan to pay off.

Among others with similar prospects from my year group, the consensus is clear. We don't regret our degrees for a second, but the impact of our student loan on our ability to save is considerable. The repayments are hugely noticeable even though they barely scrape the froth off what we owe.

If I keep paying £150 a month, in 10 years I'll have paid off £18,000 of my loan. But if I could invest that money in the stock market instead, managing to make an average 5% annual return, in a decade I'd have saved £23,000 – probably enough for the deposit on a flat. I can (just about) accept this drain on my finances. But if I hadn't been so lucky with my career, the debt would be much harder to stomach. If I'd tried to get a graduate job, failed, and settled for a non-graduate career in which I earned more than £15,000 (my student loan repayment threshold), I struggle to see how my degree would have been anything but damaging to my personal finances. A disturbing number of debt-ridden graduates are facing this reality. Swamped by intense competition for jobs, nearly half (47%) are failing to get hired in "graduate" roles, even five years after leaving university.

Millions of people make better-than-average livings without going to university. Only 14% of British workers currently earn more than £40k a year, but 48% of these don't have a degree, according to numbers crunched for the Guardian by the IFS. However, because more people are going to university, competition is intensifying and some jobs that were once open to anyone now require degrees. Several years down the line, the labour market is likely to be full of student loan-ridden graduates.

The new post-2012 loans are particularly punishing for people on medium salaries. Graduates repay 9% of all earnings above £21,000 for 30 years (or until they've paid it off).This means modest earners get off relatively lightly, but over the course of their career, someone starting on a typical graduate wage of £25,000 and with a typical debt of £45,000, is likely to pay it back in full.

In this case repayments would start at £360 a year, which, if paid instead into a company pension could grow to around £100,000 in value over 30 years, according to Hargreaves Lansdown calculations, which assume a 5% growth rate.

Now consider that the UK is on track for a pensions crisis because people aren't saving enough for retirement. A £100,000 pension pot is more than three times as big as the nest-egg the average British worker is squirrelling away. It could mean the difference between total dependence on the state pension and being comfortably off in old age.

Far from a friendly, fluffy "graduate tax" as the government likes to portray student loans, loans taken out from 2012 produce debts with sharp teeth and real potential to chew up people's ability to save. And most graduates will leave vast (and growing) chunks of debt unpaid, leaving a potentially devastating burden for future taxpayers.

Politicians would rather stick their fingers in their ears and whistle than admit that too many people are paying too much to go to university. For them, herding youngsters into useless degree courses as a quick-fix for the youth unemployment rate makes sense – especially when each student it finances results in a £94,000 profit for the Treasury.

The cost of university has already hurt my generation's finances, but it doesn't have to continue to. Courses should either cultivate superior academic rigour or teach people industry or trade skills they can take with them into the workplace. A closer inspection of the courses that do neither of these things, and an attempt to improve them, could be a good first step towards making sure people's money isn't being wasted.

the guaridan

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