Pity the Postgraduate: why we need a new funding system for education's highest tier

Investing in postgraduate degrees would have huge benefits for the economy

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When my future daughter sits on my knee and asks me what I did during #Demo2012, I will not be able to look impassively into the distance like the archetype of 1920s masculinity I ought to be. I will be forced to admit quietly that I was in Primark, happy, finally, to own a £12 pair of shoes.

This is what it’s like to be a postgraduate student.

Like our politicians, I didn’t pay £9000 in fees, and therefore have limited sympathy with anyone who does or will. And, like our politicians, I enjoyed a comically subsidised undergraduate education. In fact, my total income in grants and loans exceeded the income of one of the lecturers who taught me. This lecturer had gone to Cambridge aged 12. We laughed at him for this. He was surprisingly tolerant.

Education is great. It means I can quote Epicurus: “Only the educated are free.” Maybe, Epicurus, but all the same I can’t bring myself to support the campaign for free Higher Education. I didn’t attend yesterday's student demo because, lurking in the back of my mind, was the thought that someone somewhere has to pay for "free" education, since the room in which I study isn’t going to heat itself.

But the pre-Browne review fee regime was not that reasonable, either. When the cost of teaching a degree is greater than £3,000 per pupil, as it was most everywhere under the fee system before 2011, staff effectively subsidised their pupils by getting paid lower wages. Money assigned to universities for research purposes gets put to subsidising learning instead. Those who didn’t go to university subsidise those who do, despite being less well-off on average.

The good of education

None of these concerns is fatal. Education is not a normal good. It has many positive spillovers: societies tend to benefit from having lots of well-educated people. We get a better labour market, with more high-paying jobs. We gain more revenue in tax, allowing better public services. Technology improves faster. We get a better informed citizenry. People’s University Challenge scores go up.

In short, the justification for subsidising undergraduate education is that, even though most of the benefit from an undergraduate degree flows to its recipient, there are still very good social reasons to do so. Undergraduates get a lot of support: they get very cheap loans, fees that remain lower than the cost of the degrees they produce, and some money to put towards maintenance.

Now, let’s take a look at postgraduate education. Here, your average student is considerably less well off.

Universities continue to receive funding for research. This money is meant to go to supporting academics to write books and papers, since such intellectual goods boost the economy. I was told about an engineering lecturer who was doing research jointly with Oxford and Rolls Royce. He was trying to work out how to get the outer casing of a jet engine to remain solid while at a temperature of about 600°C, several hundred degrees above the boiling point of the metal it was made from. This is awesome. However, in practice the government’s research funding has been used to cover all of a university’s costs, academic and non-academic, even though fewer mind-boggling jet engines result. Some of it is put towards support for postgraduates (though the Coalition cut this by about 80%).

The EU provides some funding for a very small number of lucky, able, or well-connected graduates. For postgraduates, loans are repayable very shortly after graduation, and have a typical APR of 9.9%. Banks are less willing to give money to all sorts of people since 2008. For most postgraduates, there is now no financial support at all. This is why I have been walking around for the last month with a hole in my left shoe – and why I missed yesterday’s demo to go shopping in Primark.

“Ah,” I hear you say. “But postgraduates spend all of their time doing useless things. They are indolent, self-indulgent, pretentious, and often bearded. They get high and read books. I’d love to spend my time doing that, but I live in the real world. Quoting Epicurus at me just makes you look like an arse. Why don’t you go shave your beard and get a job.”

Well, there’s no need to get personal. We can measure the social benefits from postgraduate education. CentreForum’s Tim Leunig has shown that the benefits to introducing a system of postgraduate loans are gigantic, while the costs are very small. Leunig’s calculations suggest that every pound spent on postgraduate loans, even on highly conservative assumptions, would yield about £20 to the economy. Compare this to HS2, which, for every pound spent, is forecasted to yield around £1.40, on some pretty adventurous assumptions about the wider economic benefits of the railway.

Cost benefit

Postgraduates do useful things. They get more technical jobs, write books, and learn important skills. The average annual postgraduate wage premium (the difference between the average annual undergraduate salary and the average annual postgraduate salary) is about £5,000. Earnings growth is also faster. Over the course of a lifetime this adds up to about £200,000. Obviously the exact premium will vary from degree to degree. But even arts and humanities postgraduate degrees add to the expected income of the student: critical thinking skills are useful to firms regardless of whether they were honed in the laboratory or the armchair.  

Currently, postgraduates are somewhat more likely to have gone to private school, are somewhat more likely to have an upper class background, and are much more likely to go to a Russell Group university. This isn’t surprising: the costs and uncertainty involved in undertaking postgraduate study are likely to dissuade those with fewer financial resources. The upshot of which is that making postgraduate study more affordable should improve social mobility.

Once, before tuition fees, Thatcher visited Oxford. The Oxford chemistry alumnus asked a student what she was studying. “Ancient Norse”, said the student. “What a luxury,” replied Thatcher. But the Iron Lady was quite wrong. Qualifications can have considerable economic value even when they appear esoteric. So it is with postgraduate education. We need a better funding regime.

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