Dreams Are Not For Your Children


I have two children, aged 6 years months, and 15 months.

In about 12-16 years time, they will be considering university, or working, or deep in debt at University. I will be faced with a dilemma, as will they.

Is it economically sound to go to University?

By 2020, or 2023, the answer will be a clear “No.”

If you believe in freemarket economics, University Educations will no longer present a sound investment. The Return On Investment is unjustifiable. No pension fund or Asset Management firm would recommend it : even though they won’t hire someone without a degree level qualification these days.

Because the estimated cost of going to University, including lost earnings and increases in house prices, I’ve estimated at somewhere around £194,555.80. There are a lot of variables though.

Yes, there are a lot of forecasting in that, and figures are available on request : but that is, net, is 9 years and 10 months salary at todays average salary.

And that is why there are riots. Because Education is now a privilege. Because the Government are sending a clear message to all of us. Pay for your Education with debt, pay again in lost earnings, pay a third time in increased tax. Getting a degree is economically unsound. Get a job and get your employer to pay for you. Go and earn money and leave such crazy ideals as education to the rich and well off.

Going to University will cost an average graduate 3.7 years gross salary in debt alone, as well as losing three years actual earnings by not being able to hold full time work whilst in University.

What kind of earning potential does a Degree hold now? And what kind of earning potential will it hold in the future? In 1991, approximately 33% of the school-leaving population went to University. In 2010, approximately 54%. To an employer, a degree is now worth less than it ever was. It’s certainly not worth the money it will cost you to get it.

I’m not a qualified economist. But from an employers perspective, the value, and employability of someone with a degree-level qualification would plummet when its now over half the CV’s have one, as opposed to a third. Previously a degree had a value in the workplace, now, to an employer, it doesn’t. Graduate starting salaries in most industries and careers are barely more than non-graduate salaries.




THE ACTUAL COST

So what does it cost to go to University?

Before we get to the magic figures some caveats :

- I haven’t calculated any interest payments on the tuition fees (currently around a minimum of 1.5% per annum, probably to rise)

- I am not taking into account any post graduation earning in a taxed form as tax levels in 2015-2060 cannot be reliably predicted. If I were conservative, I’d estimate the average tax rate for a graduate at 40%

- Actual cash values for variables such as lost career end earning potential, rents, rates, mortgage costs, are variable. The figures are based on approximate averages for illustrative purposes.

- RPI for three years at 5.2% had been added to costs at university itself.

Therefore the figures I discuss here are going to be, realistically, probably a lot lower than the actual cost which is currently probably uncalcuable over the lifetime of a graduate.



LOST EARNINGS AND TUITION FEES :

Tutition fees are set to rise up to up to £9,000 a year. A three year degree, in Tuition fees alone, may cost around £27,000. Food, rent, electricity, and other luxuries will cost no less than around £4,000 (and that is a modest proposal at £11 a day) a year – so over three years that’s £12,000. Then there’s the fact that there’s inflation. Factor in compound inflation pegged against RPI at around 5.2% per annum, and the total of a three year degree if you start today in hard cash terms is around £41,063.15. Factor in three years lost earnings at the current median income (at an average of around £26,000 per annum judged here) and RPI and the cost of a degree is a total of £119,063.15 in costs and lost earnings

(For clarity, I have assumed our typical graduate isn’t getting a salary rise, as no one is these days.)

LOST CAREER PROGRESSION :

If the graduate has any career progression, what we’re actually looking at is additional three years of lost earnings at career high point in say 2060 which could also cost a total of half a million pounds in compound calculations from 2015 to 2060. If the pension and retirement age rises, I’m estimating that since more than half of people retire before the state mandated retirement age through health, caring responsibility, or enforced retirement through redundancy or unemployment then not being able to find another job, I’m going to estimate an average retirement age of 68 in 2060.

Since I cannot be bothered to calculate inflation and average earning for a CEO or Director level person half a century from now, I’m probably being modest in my estimation. But that degree is the most expensive three years of your life.



HOUSE COSTS:

Add in rising house prices and rental costs, and the total cost becomes almost uncalcuable. If you can get a mortgage with a £67,000 (25%) deposit, you’ll probably buy a house three years later, at an increased compound cost of say 7.5% over the earlier cost – and an average cost of £250,000 in cities (see here) and paying approx 100% of the increased value over a 25 year mortgage – and the house costs of going to university will be £37,500 in average house price inflation alone – the housing market bubble could burst which would alter that figure, but is important nonetheless to consider that house prices could again rise considerably. That doesn’t take into account any radical inflation changes in house prices. And that relies on maybe being able to garner £67,000 for a deposit, unless you are lucky enough to have a pile of cash, or dead parents bequeathing their homes to you.

A SOUND INVESTMENT?

Is that a sound investment? Is a graduate going to earn enough as a result of the competitive advantage of being a graduate to justify these costs?

Probably not. Taking into account tax at 40%, this figure will probably become something approximately £166,000 in pre-tax earnings. Or, around 6.4 years post tax salary at an average wage, as well as three years lost earnings for not being able to work?. In total, going to University will cost you around 9.4 years gross salary in lost earning costs and subsequent costs.

According to that well known bastion of Conservatives, The Telegraph, the average graduate would earn approximately £160,000 more than a non graduate in today’s market . The debt burden to a graduate, taking off this £160,000 more would be around £6,000 : and add 40% back in taxes of around £60,000 so the total cost of going to university, even including extra earnings, is £60k. Or, post-tax net average salary earnings of 3 years, 9 months ; pre-tax 2 years 6 months. Add in the three years lost earnings by not having a full time job whilst studying, and the total loss is an additional three years gross salary at an average of £26,000 becomes, at the most frugal calculation – adding the £66,000 to the £78,000 lost earnings, getting a degree will cost each and every graduate an estimated average £144,000.00 under the new regime. Not taking into account career progression and housing costs.

I’m sure a learned, hawk-eyed Tory economist could rubbish my figures. That’s the perojative of the well-off ; to deny access to the poor of the opportunities they had that made that financially rich and spiritually poor.

No economist would look at that and think it is a sound investment. Under the Freemarket Economic models (), Universities will simply shrink and many may have to close completely as they do not offer the tangible value University “customers” will expect. Customers – graduates – could, in theory sue, Universities for failing to provide the service offered.

In twenty years time, the situation for University Education will be grim. The percentage of students going to university will fall dramatically, and probably to pre-1991 levels of less than a third.

For the first time in hundreds of years, the next generation are going to be living in a world where they have less than their parents, earn less, work harder and longer for less and are taxed more. An average degree will have an absolute cost of around a quarter of a million pounds in unavoidable costs : including the additional tax the Government will happily take from anyone earning more because they went to University. In 20 years time – hell, in 3 years time - an education will probably be a economically unviable investment. And this is why there are protests and riots.

Because the future is being sold out from under the feet of my children, and yours.


- posted by Mark @ 9:17 am