GRADUATE DEBT-A GROWING CHALLENGE FOR THE HE SECTOR

GRADUATE DEBT – A DEVELOPING NARRATIVE
The Higher Education sector should be wary. There is a narrative developing, articulated with increasing regularity in the media, that students are not getting value for money from their university education.

The graduate premium is not as big as Ministers claim, and in any case is narrowing significantly.  There are now   serious alternatives to a university education, including high quality apprenticeships and company and on the job  training programmes .Employers, fed up with the quality of graduates who apply  for their jobs, who signally lack   the kind of soft skills they are looking for,   are now   looking elsewhere. Thats the narrative. Students are being miss-sold  a university education.  Why saddle yourself with debt when you can be paid while you train for a guaranteed job?. Earlier this year the Higher Education Statistics Agency published figures showing that one in four graduates was not in a graduate job six months after receiving a degree

The Intergenerational Fund think tank, says that student debt payments wipe out the benefit of higher salaries for most graduates. Indeed, MP Frank Field found out from the Office for National Statistics  that more than a quarter of graduates were paid less than the £11.10  an hour average for those on work-based training schemes (Apprenticeships) in 2013 . With a  government focus on  incentivising the provision of   more high quality Apprenticeships the balance is likely to have tipped further in favour of those on work based training schemes, over the last three years.

Alice Thomson in the Times, this week ,wrote ‘The 500,000 students settling into campuses this autumn will be incurring average debts of £44,000. For those inspired by their courses and for the intellectually gifted, this is probably still worth every penny, but for many of the 49 per cent of the population who take up places at university it will be close to a waste of time. The higher education ombudsman has received more than 2,000 complaints from students in the past academic year over issues such as too little time with tutors, overcrowded lecture theatres and poor teaching. Apprenticeships are in many ways far better value for money. The National Grid’s engineering training programme for school leavers pays £23,500 a year.’ Thomson’s views are shared by a number of other commentators.

There is not much evidence that the sector is fighting back. Its  looking complacent, unaware of the avalanche that is about to hit it.

A report out this week from The Money Charity reinforces the idea that students are overburdened with debt.  The figures reveal that the latest group of students from England to begin to pay off their loans owe more than ever before.
The average debt for the graduates who entered repayment this year was £24,640, up from £21,170 in 2015. Due to incremental rises to tuition fees and maintenance loans, the sum owed by students has risen steadily for the past decade, tripling since 2003. Much of this is driven by the introduction, and gradual rise of tuition fees.

The other, often overlooked, driver of rising student debt is the runaway cost of accommodation, which requires ever larger maintenance loans just to keep up. Original research from The Money Charity last year found median rents growing by £277 between 2014 and 2015.

To make matters worse, this is the last group of students to pay a maximum of £3,465 in tuition fees before the rise to £9,000. So the 2017 group will immediately owe £16,605 more than their predecessors, even before we take into account the rising maintenance loans.
This year’s graduates, who will begin to repay next year will face average debt levels of well in excess of £41,000 – 35% of the average outstanding mortgage (£117,162)!
Michelle Highman, Chief Executive of The Money Charity says:
“For nearly half the young people in the UK, becoming a student will be the first step into adult life, with all the financial responsibilities that brings. We worry that these early, formative experiences of debt will leave a lasting legacy.”
“Normalising large quantities of debt right at the start of people’s financial independence risks setting them up to fail. The size of these sums may also affect later borrowing such as loans and mortgages.”
Universities are not just about preparing young people for the job market. Far from it. But students are now  paying for their Higher Education and incurring substantial debts before they even begin their working lives. This means that increasingly they will think about future earnings and the size of the so-called graduate premium and the likelihood of getting a graduate level job after their studies. They will take a keener  look at destination measures. In other words, how successful graduates  are, from particular institutions and courses, at getting good jobs after graduation. That is the new reality. And the sector will have to respond.

On a positive note for the sector, most young people aged 11-16 want to go to university, according to the latest survey(Sutton Trust). But more engagement with employers ,from 16 onwards   and better information on the options available to them,  could  mean that by 18   less   of this cohort  will opt  for Higher Education.

See Graduate Employment and Earnings Outcomes of Higher Education Graduates: Experimental data from the Longitudinal Education

Outcomes (LEO) datase
The median earnings five years post graduation for those graduating in 2003/04 was £26,000 compared to £25,500 for those who graduated in 2008/09
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/543794/SFR36-2016_main_text_LEO.pdf

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