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Student Debts Outweigh Most Graduate Pay Premiums

Posted by Richard Ward in ,

Image courtesy of Flickr, Creative Commons

A report published by the Intergenerational Foundation has concluded that for most professions, having to pay back student debts will wipe out any premium that graduates can achieve throughout their career.

As a result, it's argued that politicians should stop playing the higher graduate earnings card to justify increasing of student fees or freezing repayment thresholds. However, the government says that higher education does still boost employability and earnings.

The report, which focuses on tuition fee rises in England, points to the reference of a graduate pay premium as justification for increasing tuition fees. The graduate pay premium refers to the amount of additional money it is estimated a degree can help graduates earn over the course of their lifetime.

In 2002 ministers had put the figure as high at £400,000, however more recent estimates have been significantly below this, at around £100,000.

The report argues that although the higher premium figure of £400,000 may be relevant to an Oxbridge graduate, for the majority it is much lower. Moreover, due to the increasing number of graduates, the value of a degree is being diminished, with some previously low-to-median paid roles now requiring degrees.

It was estimated that the current £100,000 premium equates to an annual bonus of just £2,222 over 45 years of work and is wiped out once National Insurance and income tax are taken into account.

In addition, the premium is not large enough to cover the interest accruing on an average loan, which can result in total debt reaching £282,420 over a 30-year period, at which point the debt is written off. This could in turn deter those from poorer background attending university.

Another major concern is that the terms and conditions of student loans can be changed at any point, without notice and that the government has already broken a promise that the income threshold for repayments would increase in line with average earnings from April 2017. It will now be frozen for five years at £21,000, as was announced in November 2015.

Despite the concerns the government still insists that a degree continues to give graduates a substantial earnings boost over the course of their career.