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Servicing Student Debts: What Degree Pays?..by Shivum Taank and Steven Mortonson

University fees are higher than ever before, and the total debt that students in England accumulate to fund their higher education is rising at a notable rate; over £10bn will be lent to prospective undergraduates in 2015 to enable them to access university education. An ever-increasing financial burden is being placed upon those who wish to study a degree at university, which begs the question, what degrees are worth racking up tens of thousands of pounds of debt for?
 
It should be stated from the outset, that one doesn’t simply go to university as a means of getting a degree and a subsequent graduate job. University students develop a great deal more than just career prospects, and many graduates attest to undergraduate study being the best years of their life, both in terms of personal development, and as a life experience.
 
However, an extract from the House of Commons ‘Student Loan Statistics’ briefing paper outlines that “the impact of [higher fees and increasing student loan applications] on graduates is expected to be larger average loans, lower monthly repayments, a large increase in the average duration of a loan, increased average repayments across the lifetime of the loan (with the largest increases coming from the highest earners) and an increase in the proportion of graduates who have some of their loan written off from around 15% for pre-2012 borrowers to around 60%”.
 
Within this context of the total debts accumulated by a majority of university students placing a long-term financial strain upon graduates, university applicants must increasingly have to consider their ability to service their debts, which, depending on the course and institution, can easily reach over £40,000.
 
The average starting salary for a UK graduate varies source by source, but typically, £25,000 is stated as a broadly accurate estimate for those graduating in 2015 to earn at their first job. A useful means of forecasting one’s savings, and subsequently determining an ability to pay off debts, is to produce a cash flow.
 
The parameters of a cash flow that are applicable to all is, naturally, limited; however, the cash flow outlined in Figure 1. uses this £25,000 starting salary as a starting point, with a healthy salary growth over time, and applies an arbitrary £15,000 annual cost (to include rent, and other miscellaneous expenditures), to provide a general forecast of how long it would take a graduate to service typical student loan debts.


Figure 1.
 
Figure 1. shows that our “typical graduate”, earning £25,000 as a starting salary, would accumulate £40,000 in savings after five full years of employment. Chart 1. illustrates this cumulative savings figure against two student loan debt repayment levels; one calculates a debt of £27,000, incurred at a rate of £9,000 per year for three years, and the other outlines the higher limits of the student loan debts that graduates can accrue; studying at certain institutions, or in cities where maintenance loans are particularly costly, drive these high rates of debt. As the chart demonstrates, it can take between four and five years of earning a growing salary to be able to have enough disposable income to write off student loan debts. Place that within the broader context of saving to get a foothold on the property ladder, and one can begin to appreciate the longevity of the financial burden placed upon students who rely on student loans to access higher education. 


Chart 1.
 
As one begins to appreciate the financial commitment that pursuing a degree at university demands, prospective students are forced to consider their employment prospects to an ever-increasing extent. A broad analysis of the graduate job market enables one to identify some common themes in terms of post-university employability prospects: studying particular degrees, and attending particular universities can bolster both employment rates and starting salaries to a considerable extent. 


Chart 2.
 
Subjects underpinned by the “hard sciences” (maths, physics, biology etc.) offer graduates of those fields access to jobs that are considerably well remunerated, as illustrated in Chart 2. The average dentist will start on a salary of over £30,000 (but will have two years of extra fees to pay for); medical students will be subjected to similar circumstances, and face equally healthy salary growth prospects. Similarly, subjects that have mathematics at the heart of the discipline seem to enable access to jobs in corporate organisations that typically pay their employees above-average salaries.
 
In the way that reading certain subjects at university lead to notably higher starting salaries, so too does attending particular institutions. Charts 3. and 4. show that particular universities, and business schools, yield graduates who attract particularly high starting salaries, and continue to enjoy healthy salary growth. The average University College London (UCL) graduate’s first job would pay £28,400; similarly, the London School of Economics (LSE) boasts a particularly high number of graduates who receive job offers from the top financial institutions in the City, and are remunerated extremely well as a result.
 

Chart 3. 


Chart 4.
 
Advice for those considering studying a degree at university is two pro-pronged.
 
Firstly, it is important to remember that one attends university to achieve many things; prospective undergraduates should place a great deal of importance on considerations that will influence their experience at university, and go to university if they have a passion to pursue a particular subject matter.
 
Secondly, however, with the aforementioned debt burden that graduates will have placed upon them, studying subjects at university that will open doors to jobs that will enable them to service these debts more readily will alleviate said strain.
 
Whilst the evidence presented in this post points to studying the sciences at a handful of universities, there are a broad variety of degrees offered by numerous universities which can lead to healthy starting salaries. The key for prospective students is considering their post-university employment prospects carefully; those that show such foresight will benefit from a salary that will likely facilitate long-term financial solvency in a context of ever-increasing graduate debts.

About the author

Steven Mortonson
Steven Mortonson
As a Customer Analytics and Insight specialist I help businesses to exploit the potential of Customer Data. I specialise in Retail & FMCG, AGILE Product Management and Open Source Analytics, in fact in almost any tool or process that uses customer data to drive business decisions.

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