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Articles > Money July, 09, 2012

Why £9,000 a year is a fair price to pay for a university degree

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When the government announced it would be implementing the proposed changes to tuition fees as recommended in the Browne report there was uproar nationwide. Student unions began branding the fees “unaffordable” and “damaging for the UK’s long term economic future”. In truth, both of those charges are wrong, and in fact these changes could do far more good to the UK economy than fees of less than £3,500 ever did.

Photo by Kunal Shah

Previously we had a system where students from the UK could pick up an entire degree for less than £15,000. This lead to a boom in the number of students going to university and consequently a massive increase in the courses available. This included a rise in so-called “Mickey-Mouse” degrees; degrees that in theory don’t lead to an increase in options or pay in the labour market relative to that which you would expect from a university degree.

Let’s get one thing straight – regardless of income £9,000 should not be unaffordable, because when it comes to repaying the loan; the monthly payments are indeed progressive (the percentage paid back increases as your wage rises) and the payments don’t even begin until the graduate is earning over £21,000. Regardless of this, there is still the belief that this will put people (particularly from low-income backgrounds) off going to university and instead lead them into taking up low-paid work immediately. The logic behind that idea is bizarre – what higher fees should (and probably will) encourage students to do is to look at the course they’re studying and ask themselves the following questions:

Is this course a worthwhile investment of my time and money?

This should help discourage those who would have otherwise dropped out of their course or spent all their time and money in the student bar instead of focusing on their course, from entering uni in the first place (taking up a place that could have been better allocated to a more committed student who would have completed the course).

Will I make a healthy return on my investment?

This should discourage students from taking degrees that offer no real leg-up in the labour market and should also encourage applicants to fully assess all the possible routes into the workplace (particularly apprenticeships) before committing to taking out a five figure student loan. In effect this will reduce the percentage of people who merely go to university because they feel it’s the done thing after finishing A-Levels; and should in the long term improve the quality of the UK labour market as students pursue the path that’s best for them.

Here’s a fact which is often overlooked: over a lifetime the average earnings of a graduate are £160,000 higher than a non-graduate (interestingly when you break it down by subject the range varies from £340,315 for a medical graduate down to £34,949 for an arts student). It’s also important to remember that a graduate can expect to be offered a starting salary of around £23,500 in their first job post-university. Given that as of 2012 the average degree will cost £27,000 – this is a pretty good rate of return. Surely spending £27,000 in return for a £160,000 increase in salary is perfectly justifiable. The bottom line is will: it discourage students from going to University? Only if they feel the degree isn’t worth their time or money.

Visit Eduard’s Blog: Pointless Economic Musings

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  1. Khalid Jones

    I see a few problems (i’m a pessimist) in the 9000 tuition.

    1. Are you kidding me, a UK education is NOT worth that much money, at least not anymore!

    2. It is unfair (i’m biased) for certain graduates. To my understanding it is only paid off when the graduate starts earning 20K, and it is written off after a certain number of years. Im speaking from experience here, so what is being said is that if I’m a hard working person who makes great effort to complete an Engineering degree and lands a job with a 32K starting salary will actually end up paying the fees (at a higher value as well as complete due to amortisation), than some one who lets say studies history of art (if there is such a subject), doesn’t land a job for a few years and then starts at below 20K before one day reaching the threshold, just to find their debts have been written off!

    3. This is where the pessimist comes in, I’m not a fan of Labour but they had one good policy, Education, Education and Education (i know they are the root of the problem, but right idea at least), however conservatives seem to abide by the traditions of aristocracy and only allow for the rich and the geneticly gifted individuals to peruse an education. This in my oppenion is going to cause extreme harm to mature student whanabes as well as people going for courses such as business at mid-level institutes with repay potential, however not as good as lets say LSE.

    4. and finally the 9k subsidies which so many university have decided to charge despite their investment values, and students are obliged to use many of these universities, due to their limited potential, and lack of options. Although most students can go to the EU and study at some of the top universities in the world with relative ease due to the adoption of English as the teaching language, this choice is naturally difficult as well as it will limit their options with companies used to UK qualification (which are majority of the companies in the UK, despite all the cries that the foreigners are taking all of our jobs!), so adapting this option will lead to working abroad as opposed to home and near family which will be difficult for most people.
    However as soon as more and more people realise there is something beyond their borders (I’m specially talking to the English reader who doesn’t know there is a country north of their border let alone to their East), UK institutes will suffer a great blow.

  2. Ben Marks

    A few points.

    1. What are these ‘Mickey Mouse’ degrees everyone goes on about? Media Studies is often mentioned. But the UK has a fantastic, vibrant ‘creative industries’ sector and being able to analyse, deconstruct, comment on and perhaps improve the output is surely a good thing? If someone gets a degree in Golf Course Management, then surely they will be able to get a relevant job — maybe managing golf courses(!) – quite easily? Bring on those Mickey Mouse degrees! (as well as the trad ones, of course).

    2. I think there should be some caution when looking at *average* uplift in salaries. There is a big variation between the top and bottom of the tree. So Medics do get a vast uplift from getting a degree, less so for sociologists (by the way a fantastic, fascinating topic!) Averages can be very misleading. Despite that, I still strongly believe in the value of a degree for the many, not the few.

    3. I completely agree with you, Eduard on the issue of the value of the new system. The £9000 fee is actually so highly subsidized in terms of financial support that it is, in fact, very manageable. The organisations who’ve talked about ‘a lifetime of debt’ have done a grave disservice to the young people they represent, in my opinion! They’ve created an environment of fear which has / will put off tens of thousands of bright prospective students — probably the ones from lower income families who stand most to gain from the new highly supported and means tested system. Why don’t these organisations / political parties instead say ‘£30 per month repayments when you’re on £25,000 for a degree? Pretty good deal!” The conspiracist in me thinks maybe the government has allowed the message to be misinterpreted because it’s such a *good* deal they (the govt / taxpayer) can’t actually afford to honour it, especially if the numbers of students remain constant… So perhaps they want to put students off. It certainly seems to be what’s happening.

    Sorry for the long comment!
    Ben Marks – MD YouthSight / The OpinionPanel Community (but purely my personal thoughts)

  3. Dion

    Interesting article. I agree with you in principle that if one looks at the situation logically, the investment in a good degree still seems worthwhile. Higher fees will surely mean fewer “Mickey Mouse” degrees.

    However, people don’t always make completely rational choices, and for those from backgrounds that don’t respect/value Higher Education as much it’s another reason not to go. Many of these people are smart enough to succeed at university, but are put off from going by a variety of socioeconomic factors.

    These are the people who will suffer most under the new fee structure, and therefore the people most in need of interventions to mitigate against the negative perception of overwhelming debt and other such off-putting factors.

  4. Simon Mayo

    The difficulty with the logic in this article is that it frames Higher Education purely in terms of it being, in effect, a business investment. Increasingly, in my opinion, this has become less the norm. Students entering university do so for the opportunity to specialise, further their minds and, god forbid, enjoy themselves. People should go to university for the enjoyment of learning something – regardless of what someone else may think of it. There isn’t a lot of money in being a musician (necessarily). Students study it to degree level because they love playing, writing, listening to music. Cost should not be a barrier to this. And worse, it should not be designed to put people off.

    As for the assertion that the increase in fees won’t put people off-the statistics say otherwise. There has been an 8.9% drop in applications for the upcoming year. And it is simply the case that poorer people are significantly more debt averse than their more well off counterparts. All education should be a right-even if you want to study casino management.