How much is a degree worth?

Why the wrong choice of degree at the wrong university can prove very costly in the long run

How do sixth formers choose the degree they study at university? Anecdotal evidence suggests many plump for the subject they've enjoyed at A-level. Hence the popularity of English and history. Others opt for anything but a tired, old school subject, favouring American studies, archaeology, pop music or surfing.

How many look at the future earnings associated with the degree studied? We don't know. But the evidence is that they should, particularly in view of rising student debt and the cost of university education. New research from Professor Ian Walker, of Warwick University, and Yu Zhu, of Kent University, shows that graduates earn an average of 25 per cent more than those who didn't go to university (£220,000 over a lifetime) but that there is wide variation according to degree subjects.

Those who opt for courses in law, medicine, veterinary science, economics, business, mathematics and engineering earn considerably more on average than graduates of arts and education degrees. "It's hard to resist the conclusion that what students learn does matter a lot; and some subject areas give more modest financial returns than others," Professor Walker says. Surprisingly perhaps, his figures show that arts graduates earn less on average than those leaving school with only two A-levels.

These findings are supported by research carried out by the Centre for the Economics of Education at the London School of Economics. "The subject you study has a massive impact on the amount you are going to earn over a lifetime," says Gavin Conlon, one of the LSE researchers.

"All the research shows that. If you study law and economics you are more likely to be in employment and more likely to earn a substantial amount than if you study arts and humanities."

That may seem like common sense. Earnings in the fields of law and medicine are high, reflecting the supply and demand for the skills of lawyers and doctors in the labour market. Teachers' pay is lower because, with exceptions in some areas, their skills are not in short supply.

Apart from law, the subjects that command the higher salaries require some mathematics, or, at any rate, some skill in logical reasoning or problem solving. "There is a lot of research showing that, irrespective of what qualifications you have, if you have A-level mathematics, it adds 10 per cent to your earnings," Mr Conlon says.

But your choice of subject is not the only factor deciding whether you are likely to be a high or low-income earner. Your degree classification matters too. You may be just as well advised to study a subject in which you will do well because your pay depends also on whether you achieved a 2:1 or a 2:2. Someone getting a first-class degree could find themselves earning 10 to 15 per cent more than someone with a 2:2.

And a new study to be published shortly by the LSE's Centre for the Economics of Education has calculated how much better off you are likely to be if you attend a Russell Group university – research-led universities such as Manchester or University College London – compared with a new university. The study found that attending a top university adds 3 to 5 per cent to your income over a lifetime.

That means that someone with a degree from UCL who got a job in their mid-twenties with a law firm in the City could find themselves earning £100,000 more over a lifetime than a law graduate from a former polytechnic. And that is a conservative estimate. It therefore makes sense for university applicants to choose their institutions with care.

Given the Government's new proposals to free universities to charge top-up fees, the LSE researchers went further and estimated for the first time how much more money students would be willing to pay in fees for a university that gave them a degree with so much added value. They discovered that students would be prepared to pay a couple of thousand pounds extra for a degree that boosted their earnings.

That piece of research will strengthen the hands of those, including the Prime Minister, Tony Blair, who believes that Britain's leading universities should be able to charge more to maintain their position in the global marketplace.

The research shows students need to think very carefully about the course and the institution they choose to study. If it can make the difference of at least £100,000 over a lifetime to go to a school such as Leeds or Nottingham, it pays to weigh up the instant gratification you might get from studying English literature at a middle-ranking university against the delayed gratification of being able to afford a Mercedes after three years of dry lectures in economics or law at a Russell Group institution. If you still decide to opt for English literature, well and good. But at least you will have thought about it hard.

What matters, says Professor Nicholas Barr, professor of public economics at the LSE, is that you get satisfaction from your career. "When I meet my former LSE students what hits me is not that they're rich but that they really love their work. It's a huge pay-off for their studies."

l.hodges@independent.co.uk