A Waste of Time? (Private Rates of Return to Higher Education in the 1990s)

Abstract

Since 1990, there has been considerable debate concerning the benefits of the expansion of higher education and the appropriate way to fund such an expansion. This paper demonstrates that three factors are decisive to the individual contemplating higher education: national economic growth; the relative earnings of graduates and non-graduates; the difference between the average and the marginal student. The results, of analysis based on rates of return, reaffirm the view that a proportion of the costs involved in higher education can be transferred to the graduates themselves in the form of loans. However, there appear to be limits to the costs that can be transferred if all students are to judge that undergraduate study is a worthwhile proposition. Notwithstanding this, most students could be lent more income to study than is now the case and indeed an average student would be advised to take any loans despite the greater debt. Marginal students, however, are making a risky private investment and, therefore, any decisions to further expand may result in students not taking up the places.

Lifelong Debt: Rates of Return to Mature Study

“…Although Williams and Gordon (1981) show that school children's estimates of current returns are quite accurate, Blaug suggests that pupils and their parents are likely, as are policy-makers, to be fairly uncertain of the likely future returns. Steel and Sausman suggest that there may be an over-supply of graduates well into the new millennium which is likely to affect rates of graduate pay, but add that the effect may not be seen as lower average earnings, rather in a wider range of graduate earnings (see also Ashworth, 1997). Despite these problems, rates of return analysis remains an important, if blunt, instrument in national policy-making.…”

“…If returns to graduates were to increase, it is possible that mature graduate earnings would Lifelong Debt 21 increase sufficiently to offset the costs of loans. However, Ashworth (1997) has shown that, in the context of expansion, marginal (that is the lowest earning) graduates might not earn sufficient to cover the costs of their education. A recent review of the empirical research (Green et al, 1999) concluded that while average graduate earnings have not fallen since the mid-1980s, the range of graduate earnings has widened.…”

A Waste of Resources? Social Rates of Return to Higher Education in the 1990s

“…A recent example of work on private and social rates of return is given by Vaillancourt (1995) for Canada. A representative list of work on private rates is given by Ashworth (1996). 6.…”

“…Ashworth (1996) has shown that the private rate of return with zero perceived growth and a loan as small as £4000 is only 1.8% for the marginal graduates. If society as a whole, as reflected by the median voter, is convinced of an education growth correlation but the individual student is not, then it can be seen that society will need to provide some subsidy to induce the students into higher education, though why they should do this for returns as low as those suggested here is not at all clear.…”

Mature Graduates I: occupational attainment and the effects of labour market duration

“…Egerton & Parry (2001) have found that mature graduates earn less over their life-time than early graduates. Given the present discussion of graduate over-education, particularly in the context of the marginal student, (Ashworth, 1997;Dolton & Vignoles, 1996) it seems important to explore the success of mature graduates in the labour market.…”