New estimates of the impact of undergraduate degrees on lifetime earnings

Abstract

What is the effect of going to university on earnings over graduates' lifetimes? To what extent do subject choice, institution and the prior academic attainment of those students matter? How much do individuals (and taxpayers) benefit from people going to university, once we account for the costs of financing higher education, and the tax and student loans systems? With around half of young people in England now entering university, evidence on these questions is as important as ever - both for individuals deciding whether, where and what to study, and for policymakers concerned with financing higher education. This report investigates the lifetime financial returns to starting a full-time undergraduate degree at a UK university before age 21. We use detailed data on a cohort of England-domiciled students who were born in the mid 1980s and took their GCSE exams in 2002. We estimate how much graduates from this cohort can expect to earn over their lifetimes, and also how much they would have earned over their lifetimes had they not gone to university. We use these estimated gross lifetime returns for the 2002 GCSE cohort as an estimate of the gross returns that can be expected by future cohorts; available evidence supports this choice. We apply today's tuition fee, student loan and tax policies to consider how these returns, net of the costs of a degree, would be shared between graduates themselves (through higher take-home pay) and the government (through student loan write-offs and higher tax revenues) under current policy. We produce estimates of the lifetime return to degrees that are informative for current and prospective students and policymakers. This is the latest in a series of reports by researchers at the Institute for Fiscal Studies, commissioned by the Department for Education, using the Longitudinal Education Outcomes (LEO) data, which link school records, university records and tax data for English students. The work follows on from Britton et al. (2020), who also estimated the lifetime returns to higher education (HE) for the same 2002 GCSE cohort based on their observed earnings to age 30, which is relatively early in people's careers. This report updates and extends that evidence base, drawing on seven additional years of tax data (up to 2023/24) that allow us to observe how the earnings of the same set of graduates actually evolved into their mid 30s. This work focuses on the financial returns to higher education: the earnings benefit for individuals over working life and the tax benefits for government net of the cost of financing higher education. It does not seek to provide a complete picture of the impacts of higher education - for instance, on pension contributions, health, happiness or job satisfaction, or potential spillovers to others. We study the returns to undergraduate degrees for students who actually enrolled in them. Our results should not be interpreted as the returns that would be realised if the higher education sector were significantly expanded or contracted, or if large numbers of students were reallocated across courses and universities.