It's the time of year again when young things in their second or third year of university begin to think about their future – does the world of work beckon, or is further study a better option? This year that decision is slightly more complicated. With talk of recession and a contracting graduate job market, many students are considering staying on at university to gain further qualifications.

Although it is relatively early in the academic year, the signs are that postgraduate recruitment is up. "In the past more students have tended to do postgraduate studies, in particular Masters degrees, during a recession" says Malcolm McCrae, who chairs the UK Council for Graduate Education. "If it goes to form, we would expect a similar trend this year."

Some universities are already reporting increased interest. UCL has seen a 21 per cent rise in postgraduate applications over last year. At Birkbeck inquiries are up 52 per cent compared with this time last year, while traffic to its online postgraduate prospectus is up 36 per cent.

One person considering further study. is Maria Suttle, who graduated with a degree in French and politics in 2007, and followed that with a Masters in international public policy at UCL. She went on to do a six-month internship at the European Parliament in Brussels which is now coming to an end. But despite her outstanding academic background and impressive work experience, she is still finding it difficult to get a job, and is considering a second postgraduate course.

"Things are very tough out there" she says. "What I'm finding is that my qualifications haven't changed, but the job market is becoming more competitive, and employers are much more fussy about the exact qualifications they want." Maria is considering a postgraduate diploma in economics, which she hopes will give her the skills that employers are after. "I'm finding that a lot of jobs require statistical and analytical skills, so I'm hoping that a more statistically-based programme will help."

Although Maria is relatively young, more established workers are also choosing to retrain. Birkbeck, a London college that traditionally attracts older students, has seen a surge in interest in its postgraduate courses. A recent open evening attracted 75 per cent more prospective students than the previous year. Many attending were workers who had been made redundant says Monica Law, head of marketing and recruitment. "Most were looking to see what could help them get back to work. Some wanted to change direction or gain a higher level qualification," she says. "Others were taking the chance to study a subject that they were passionate about – history and arts subjects were more popular than usual."

The MBA sector looks set to prosper from the downturn. At Manchester Metropolitan University Business School, applications from UK students are already up 38 per cent. Dr Mary Meldrum, head of postgraduate programmes at Man Met's Business School, expects that this number will increase as the recession sets in. "Job prospects are thin on the ground, and the volatility of the job market is encouraging students to consider a Masters as a strong alternative to entering the workplace" she says. "We are also spotting a trend of people using redundancy packages to fund Masters and MBAs to make themselves more desirable".

It's a similar story at Warwick Business School, where applications are significantly higher this year. Its director of communications, Vincent Hammersley, is not surprised by the trend. "An MBA is an excellent place to sit out a difficult job market," he says. "MBAs are career-focused qualifications. As well as providing high-level tuition in the area of management and business, participants get the chance to specialise, and acquire skills that will give them an advantage when they return to the job market."

Not everyone thinks that going back to your books is the best way to ride out a recession. A recent survey by the Association of Graduate Recruiters found that only 30 per cent of employers believed that further study would give graduates an edge in the job hunt, while two-thirds said that temporary paid employment was a better option.

Anne-Marie Martin, of the University of London career service, says that a Masters per se is not a door opener. "It's understandable that people are choosing to apply for postgraduate study, but it's a strategy not without risk If this recession follows the same pattern as others, recruitment will be much worse next year than this, so you may come out with a Masters and more debt into a labour market that is even worse."

One of the key issues for prospective postgraduates is finance. This is the first year that students who paid top-up fees are graduating. The estimates are that graduates could have up to £20,000 of debt. With one year's postgraduate study costing anything up to £15,000, including tuition and living expenses, it is not cheap. And funding options are limited. Research councils and universities offer awards and scholarships, but only a fraction of applicants receive these.

Finance has definitely been an issue for Maria Suttle who took out a hefty loan to fund her Masters at UCL. "I assumed that I would get a good job on graduating and would start paying it back immediately," she says. "That hasn't happened. Now I'm having to find more money to gain further qualifications. I'm looking at an evening course, so that I can earn some money as well as study."

Is postgraduate study worth the cost? Charlie Ball, of Prospects, says it can be. "A postgraduate degree won't suddenly make you employable but it will give you an edge, not just through extra qualifications, but by strengthening your skills and giving you the time to develop intellectually and personally." He believes that the key is to keep an eye on the job market and talk to employers in your field while you're doing a postgrad course. "As long as you remain career-focused and market your skills to employers, a postgraduate qualification will be well worth the time and money and enhance your employment prospects in the long-term."

How to bankroll the course of your dreams

If you're thinking of doing a postgraduate degree, bear in mind that it will cost you. One problem in assessing the cost is that, unlike undergraduate degrees, tuition fees for postgraduate courses are not standard. Although this lack of regulation means that, effectively, universities can charge what they like, increasing pressure on them to attract students means that fees have to be competitive.

As a general guideline, a one-year postgrad course for UK and EU students costs £3,000-£4,000 a year, and lab-based courses cost more. Studying at the LSE, say, could set you back more than £9,000. Oxford and Cambridge, on the other hand, charge a college fee on top of tuition, bringing fees close to £5,000. With living costs estimated at £10,000 a year, postgrad study is expensive.

Funding options

Research councils

The AHRC, ESRC and the EPSRC are the primary funders for postgraduate work, although their focus is on research degrees rather than taught Masters. Competition is fierce, and many students with first-class honours degrees fail to make the cut.

Institutional Scholarships/bursaries

Most higher-education institutions offer their own scholarships and bursaries. Do your research and make sure you scan the website of each institution to keep up with the latest funding opportunities.

Employer Contribution

If you are working, consider asking your employer to foot some, or all, of the bill.

Career-Development Loan

The traditional undergraduate student loan is not available to postgraduate students. Instead, postgraduates can apply for a career-development loan. Supported by the Government and offered by the banks, they lend up to £8,000. Be aware, however, that interest is charged at 12.9 per cent, and you have to start making repayments a month after finishing your course. SL

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