• UK university fees and financing costs are the highest on record
  • Recent reports show many non-degree professions pay better than most university courses
  • Young people are rightly weighing up the costs and benefits

As with many of his generation, my father was the first in his family’s history to attend university. He graduated with a degree in chemistry and then went into the US Navy. It’s not that there weren’t good job prospects at the time – quite the contrary in fact – but the Vietnam War draft was on.

The only sure-fire ways of avoiding the draft were either to get married or to enlist voluntarily. As my father came from a navy family, yet had a degree, he had the option of attending an officer’s candidate school instead of enlisting as a sailor.

Some months later he graduated, was commissioned as an ensign, and was assigned to a tour of duty on a destroyer in the US Pacific Fleet. He served the required three years before requesting a discharge, which was granted, and he re-entered civilian life.

And he went right back to school. University education was all the rage those days, the more the better it seemed. He earned a Master of Business Administration (MBA) and was rewarded for his efforts upon graduation with an executive-track job at General Electric.

Back in 1960s USA, university education of some sort was regarded as a sure thing. Any degree from any accredited institution practically guaranteed a job and an income sufficient to support a family on that one income alone.

My, how times change.

Today, many graduates emerge from academia burdened with debt and with few if any job offers. Indeed, many work menial jobs of various kinds while searching for something that could make good use of their degrees, whatever that might be. All too frequently, the search is in vain.

So what happened? While the causes of what some call a “crisis” in higher education are undoubtedly complex, one of the simpler explanations is that today’s university talent pool is both far larger and more diluted than it used to be.

In the US of the 1960s, less than 10% of the population attended university. Far more common was vocational school, apprenticeship or on-the-job training of some kind. It was entirely normal to have embarked on a career already in one’s late teens, and with no debt burden to shoulder.

By age 25 or 30, having lived some years at home while working and earning, it was entirely normal to have saved up the down payment for a home. While a young couple might have to pool their savings in order to do so, once on the housing ladder it was normal for only one spouse to need to work in order to stay on it.

Today, over half of the population goes on to some form of “further education” as it is called. In some cases, this isn’t fully complete until one’s mid-20s or so. Years that could have been spent working and earning are instead spent incurring debt to finance a degree of some sort and perhaps of questionable economic value.

Time is money. Four or more years of higher education take a roughly 10% chunk out of one’s working life. The debt incurred to finance that chunk is thus a financial claim on fewer years of work and savings. The true, all-in, time-adjusted opportunity cost of student debt is correspondingly higher.

Various studies have attempted to quantify the opportunity cost of a university education versus earlier entry into the workforce. In a recent article in the Telegraph, various professions not requiring degrees were ranked by average salaries. In many cases these are higher than those earned by graduates.

Of course, this depends on the university and course of study in question, but that helps to illustrate an important point: while much of the higher education infrastructure does add economic value, much also does not. Regardless, the debts incurred have to be repaid.

Helping to put things into further perspective, the Telegraph also reported recently that the current generation of students will be the first to end up paying off their student loans only after retirement age. Hard to believe perhaps, but that’s what the numbers show.

I wrote recently of the UK’s poor rate of productivity growth in recent years and how this is creating a “lost generation” that will be unable to enjoy the same level of prosperity as their parents. The overpromising and underdelivering of higher education provides part of the explanation.

As with unfortunate socioeconomic trends generally, this is one that can be entirely self-correcting. Young people, increasingly wary of the true, all-in opportunity cost of university, are seeking apprenticeships in record numbers. Fewer are pursuing what some call “Mickey Mouse” degrees.

The solution to the UK’s crisis in higher education is thus to let nature continue to take its course. Once upon a time, university was essentially “free” for those select high-achievers who qualified. Thus subsidised by the taxpayer in ever-growing numbers, more and more school leavers went on to higher education.

Today, almost anyone can qualify for a degree programme of some sort, but they’re required to pay. More and more are running the numbers and are realising that it just might not be worth it.

That might seem like a step backwards to some, but really, it’s just the wheel of this particular trend coming full circle. And as I wrote last week, there are also opportunities around the world that might be more attractive than what’s on offer at home.

As Milton Friedman was fond of saying, “There’s nothing more expensive than a ‘free’ government programme.” Higher education is no different. The UK will become a more productive and prosperous place as more and more young people properly weigh up the true cost of their educational options.

Until next time,


John Butler
Investment Director, Fortune & Freedom