Wednesday, June 23, 2010

Best and worst paying college degrees



We look at the value of a university education, tell you which degree is the best value, explain the premium you earn for post-graduate training.

Graduates could be asked to pay back their student loans earlier and at a higher rate of interest, after a group of the UK's leading universities demanded more investment to avert a £1.1bn funding crisis. 

The Russell Group, which represents the UK's top 20 leading univerisities, told the Government that the current repayment rate on student loans was "generous" and that "it might be reasonably increased without putting undue pressure on low earners".


The review of whether students should pay higher university fees will continue with further evidence expected to be submitted next week.

In the light of this, we ask how great is the financial benefit of attending university? Do degrees always pay off in the long run, despite the costs associated with them? And what are the best and worst paid subjects to study?

All the comparisons we make in this article are between graduates and those who could have gone to university but didn't (i.e. they had two or more A levels or equivalent qualifications).

Subject matters

It's no surprise that there are wide variations in average earnings depending on the subject studied.  Arts graduates earn just £35,000 extra (compared to non-graduates) whilst medicine graduates earn a massive £340,000 extra, on average, during their lives.

Average extra earnings for graduates by subject studied

Subject studied

Average extra earnings (compared to non-graduates)

Medicine

£340,000

Law

£245,000

Engineering

£245,000

Maths

£240,000

Physics

£190,000

Chemistry

£185,000

Business

£185,000

European languages

£165,000

Psychology

£100,000

Linguistics and English

£95,000

Humanities

£50,000

Arts

£35,000

Data from 2005 and 2007

Earnings growth steady in early years

Regardless of which degree you take, earnings grow at a constant rate in the first few years. However, they typically balloon in the mid-years in some subjects, such as chemistry.

Averages can be misleading...

...to say the least. There is massive variation within each field, which explains why some people get irate at so-called 'average earnings'. One graduate working in the same field or even the same job as another can easily earn one-third less than some colleagues.

Average graduate earnings

While graduates often start off earning a similar amount to non-graduates, this changes quickly over the years.

For example, in 2008 (the latest statistics we could find), a typical 21-year-old graduate earned just £17,472 a year, while a non-graduate with A levels earned £15,912 a year.

However, the typical 33-year-old graduate earned £37,960 a year, while the typical 34-year old non-graduate earned just £27,768 a year.

Age in 2008

Degree or equivalent

A-level, GCE or equivalent

21-22

£17,472

£15,912

23-24

£20,696

£18,200

25-26

£24,960

£20,436

27-28

£28,912

£22,256

29-30

£32,916

£24,180

31-32

£34,632

£24,336

32-33

£37,960

£27,768

All ages (21 -34)

£28,860

£21,268

Source: Prospects.ac.uk

Average extra lifetime earnings

On average, graduates earn an extra £160,000, or 23% throughout their lifetime (which is even greater after tax). That's an extra £3,600 per year, compared to non-graduates. That's despite increasing numbers of young people getting degrees: a third now do, compared with just 15% 20 years ago.

Public sector benefits less visible

Most graduates in the public sector seeing earnings statistics over the years will probably conclude they are unrealistic, but in return for a lower income most get greater job security and pension benefits.

Do degrees always pay off?

No, not always. The evidence is limited, but it seems that men with arts degrees usually earn slightly less than their counterparts who chose not to go to university. A case of those who can, do - perhaps?

It's also true that, without a degree, you can still earn more than the average graduate. Those taking training places from one of the big accountancy or law firms, for example, can circumvent the need and cost of a degree.

Also, degrees are expensive. The average student leaves university with debts totalling £15,700 and the current average graduates starting salary is just £22,300. Even if your salary goes up every year by almost 5%, it will still take you around 12 years to pay off your debt, which will cost you even more than you think .

Finally, it's worth bearing in mind that 20% of students drop out of university and a third of graduates end up with non-graduate jobs. On the plus side, graduates are less likely to be unemployed.

Degrees are more beneficial for women

On average, research shows that women gain greater financial benefits from a university education than men do. Women who don't go to university tend to earn a great deal less than men who don't go to university.

However, women's incomes, on average, are boosted more by a degree to make it a more level playing field. To take an example, men's incomes are boosted 43% by an economics degree, but women's are boosted 63%.

Similarly, men from poorer backgrounds also benefit more from university than men from affluent ones. Discrimination, it seems, is more difficult for employers when you've got a degree.

There is still discrimination towards graduates

However, there is still a big difference in average earnings between male and female graduates, with men earning at least £14,000 more over their working lives. (We suspect it's quite a bit more on average, but unfortunately there seems to be little research on this topic. If you know a better statistic, please share it on lovemoney.com using our comments section.)

Law comes top

This is the most important section in the article. Whilst medicine earns more, it also costs more. What's more, you lose out on income, because you're studying (and so not working) for more years. When you factor all these things together, law is the better investment with an average rate of return of more than 17% per year:

The annual rate of return on your degree

Subject

Rate of return

Law

17.2%

Management

16.9%

Engineering

15.5%

Chemistry

15.0%

Physics

14.9%

European languages

14.0%

Medicine (excluding dentistry)

11.6%

Chemical sciences

10.2%

Psychology

10.1%

Linguistics and English

9.7%

History

8.8%

The average rate of return for all degrees is 12.1% per year. This makes a degree the best possible investment (on average), trouncing the stock market or property over the long term.

Surprisingly, medicine has a lower return than the average at 11.6% (although dentists were excluded from the figures) meaning that perhaps we focus too much on doctors' wages and not enough on support staff.

However, weI suspect that these figures (from 2005) will be out-of-date now. 130,000 doctors earn now, at the very least, £13bn between them, with many earning as much as £380,000 per year.

Also the figures in the above table may come down now that the cost of university is going up (to an average £23,000 for students starting this year, it's estimated). However, some researchers believe the reverse will happen!

The post-grad premium

Some - but far from all - employers offer a premium for those who go beyond a Bachelor's degree. If you're lucky enough to get work for an employer that pays such a premium, those with doctorates could earn an extra £6,000 from the start. Those with master's degrees could earn an extra £4,000 and those with an MBA an extra £12,000 (although very few employers offer a premium for MBAs).

That's a lot of statistics. You may need a degree just to take them all in!

Sources:

  • Universities UK commissioned study by PricewaterhouseCoopers, 2007
  • The Royal Society of Chemistry and Institute of Physics commissioned study by PricewaterhouseCoopers, 2005
  • Study by Dept for Employment and Learning, 2008
  • Stats from the Higher Education Statistics Agency
  • Research by Ian Walker from University of Warwick and Yu Zhu, University of Kent, in 2003
  • Association of Graduate Recruiters, 2008
  • Callcredit.co.uk


--
Regards,
Hemal Kansara

http://hemal.mp

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