Is Investment In Education Becoming a Big Gamble? Why HE In UK Has Reached a Tipping Point

The Equation For A Successful + Happy Life

For decades, the route to a successful and happy life was signposted by a clear narrative: go to university, work hard, get a good degree and reap the benefits of a better job and higher salary. But for many young people today, particularly those from lower-income backgrounds, that relationship has started to unravel. For students, rising debt, fewer job opportunities, the ‘grad tax’ and soaring living costs are tipping the scales.

It’s time to ask: is the university model still working?

The Graduate Job Market is Shrinking

Graduates are now entering a job market which no longer guarantees opportunity. While graduate recruitment rose steadily between 2009 and 2019, it has since reversed course. Since April 2019, while job adverts across the whole economy are down 13.7%, the drop in roles specifically advertised for graduates has been far steeper, plummeting 67%, from 45,000 to just 15,000. Employers have become increasingly cautious, with the Chartered Institute of Personnel and Development describing today’s hiring climate as the most risk-averse in over a decade. As a result, competition has intensified significantly: in 2022, there were around 36 applications per graduate vacancy, but that metric has now soared to an average of 140. It means that new graduates are sending out dozens of applications with the chance of getting only a handful of interviews.

Student Debt is Higher, And It’s Lasting Longer

And at a time job opportunities are much lower, the financial burden of going to university has never been heavier. Graduates are now leaving university with an average debt of £49,000 and their circumstances become even more daunting under the new student loan repayment system launching in 2025, known as “Plan 5”.

This Plan 5 is the new system replacing its predecessor Plan 2. Under this new scheme, the salary threshold for repayments to begin is £25,000 (down from £27,295 under Plan 2) and the repayment period has been extended from 30 to 40 years. It’s win-win for the government, hoping for increased debt recovery. However, this has serious implications for how much students repay over time, and for how long.

‘University’ isn’t just a 3-year commitment anymore, it’s a 40-year debt.

The ‘Grad Tax’

Worse still, the system has been redesigned so that most graduates will repay nearly the full amount of the outstanding student loan, together with cumulative interest, over a working lifetime. I decided to do my own calculations based on the ‘average graduate’, making the following assumptions:

• The average graduate starts their career earning the average graduate salary of £25,160, which will grow at say 5% per annum – this is higher than the expected average earnings’ inflation, due to the fact that they are, well, a graduate, and taking career progression and promotions into account.
• Average earnings’ inflation of say 3% is applied to the thresholds over the 40-year period.
• The average graduate loan on graduation is £49,000.
• Student loans are Inflation-proofed by adding RPI. Let’s say that’s 3%, which compares positively to student loan interest rates of ‘RPI plus’ under Plan 2, which have reached an unreasonable and punitive level of 8% p.a.

A comparison of the outcomes for the plans for the average graduate is as follows:

So, under my calculations you can see that the average student in my example will repay 3 times more than under the previous system over their lifetime – £104,000 compared to £34,000! – the new regime is designed to ensure that loans are pretty well paid off after 40 years for the average graduate as that is more or less the break even.

What was once a student loan likely to be written off, is increasingly seen as a graduate tax over the individual’s working life. The only way out is to earn loads and pay the loan off early or earn under the threshold – but in that case what was the point of going to university for many people?

Most will be caught in the web.

Rents Are Outpacing Graduate Pay

Living costs are another huge barrier for undergraduates as well as graduates. In big university centres like Manchester, Bristol and London, traditional hubs for graduate employment, rents have increased by 40% since 2020 to levels where the average annual rent was £13,716 in Manchester, £16,740 in Bristol, and £19,932 in London.

By contrast, the average graduate salary has only increased by 8.6% since 2019 over a period in which UK salaries overall have risen by 21%. When adjusted for inflation, graduates today are significantly worse off than their counterparts just five years ago. With rent swallowing over 60% of take-home net pay in some areas, graduates are being priced out of independence before they’ve even found their footing in the job market.

Has The Graduate Premium Reversed?

Historically, one of the most enduring justifications for going to university has been the so-called “graduate premium”. This is the premise that degree-holders earn significantly more over their lifetime. Yet, data suggest that the salary premium pretty much halved for graduates in the mid-2010s compared to the mid-1990s to around 10% for 26-year-olds. In 2020, the Institute for Fiscal Studies estimated the lifetime graduate premium after taxes and loan repayments to be around £100,000. The critical fact is that studies show that the premium has consistently and inexorably declined since the 90s.

For many roles, the difference in salary between a graduate job and a non-graduate job at entry-level is now minimal. Unless you’re entering high-demand sectors like medicine or engineering, the financial return on investment on a degree is becoming negligible, or worse. Considering the changes introduced with Plan 5, factoring in loan repayments, cost of living, the high-earning outliers in medicine and finance, and opportunity cost — the premium may be significantly smaller in the future or, in many cases, negative – a graduate deficit.

Employers Are Focusing On Skills And Experience, Not Degrees

Across the job market, a noticeable shift is happening: employers are placing more value on skills and experience than on degrees. Partly, this has been driven by grade inflation devaluing the degree as the gold standard and partly because there is a recognition that skills and character, gained through experience, are more important for long-term success as an employee rather than academic performance. Major organisations like Google, PwC and EY have removed degree requirements for many positions, choosing instead to focus on problem-solving ability, digital literacy and adaptability. Only around 40% (see graph below) of employers stipulate a 2:1 as a minimum requirement for graduate roles, a significant drop from almost 80% ten years ago. Additionally, 18% of employers have adopted a “qualification-blind” approach in the name of social mobility, setting no minimum degree classification.

These trends are reflected in the rise of vocational pathways and degree apprenticeships which allow young people to earn, learn and build experience without accruing a debt pile. For many employers, a portfolio of demonstrable skills is now more valuable than a certificate of completion from university. A growing number of UK employers are moving away from rigid academic criteria, focusing instead on a more holistic assessment of candidate capabilities.

Today’s Students Need To Rethink The University Route

Cultural pressure from teachers, schools and parents remains strong.

Yet, the university route was once a clear path to security and higher earnings, but that model is now breaking down. With market saturation reducing the distinctiveness of a degree, graduate wages stagnating in real terms and the minimum wage steadily rising, the once-marketable graduate premium is fading away. Data shows this is the direction of travel, not a short-term trend. The financial advantage of going to university is becoming more marginal, and – depending on what course, what grade, which university – no longer justifies, or at least leads one to question, the long-term debt and associated delayed earnings.

Today’s school leavers need to weigh up their options very carefully. Many students continue to feel that university is their only real option for success – despite growing evidence to the contrary and so they are choosing to live at home while studying, take part-time jobs or pursue alternative routes entirely. With high debt, fewer job opportunities, and unaffordable rent, university no longer offers a clear path to social mobility. For students from disadvantaged backgrounds, particularly the financial risk has simply too big an impact.

What’s worrying is how hard it is to find clear, up-to-date information to help young people make informed choices. It took deep digging and spreadsheet modelling to write this article – maybe it would be a good school project to do just that! This matters, because students shouldn’t have to rely on parents or schools to guide them through life-changing decisions. They need transparent data about which qualifications and courses lead to real jobs, and which sectors still value degrees, and what their return on investment might be.

Without that clarity, too many will find themselves discovering they made the wrong decision. That won’t be just after graduation, but rather decades later, when they are still repaying a loan that never delivered the promised return.

By Neil Wolstenholme, Kloodle Chairman