Estimating the lifetime returns to undergraduate and postgraduate degrees

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ContextHigher Education (HE) choices are important for both students and governments. For students, debt on graduation from undergraduate degrees in England now typically exceeds £50,000, while postgraduate tuition fees alone can be more than £20,000 a year. Previous research has estimated that an undergraduate degree in the UK adds around £200,000 on average to a graduate's lifetime earnings (Walker and Zhu, 2011), but more recent work implies that these lifetime returns may differ dramatically by subject and institution choice. Meanwhile, the returns to postgraduate qualifications are still only poorly understood.For governments, understanding the variation in lifetime returns to different degrees has implications for both the welfare of the population and the design of the HE system. The long-run impact of degrees determines the long-run cost of taxpayer subsidy of student loans, as well as having a significant impact on government tax receipts and benefit payments.AimsWe have two overarching objectives: to increase understanding of the individual and social returns to HE degrees over the entire lifecycle, and to advance the academic literature on modelling earnings dynamics.We will estimate impact of undergraduate and postgraduate degrees in specific subjects and from specific institutions on the earnings of graduates over the whole lifecycle using the newly available Longitudinal Education Outcomes (LEO) data. Treating HE as a single entity masks important variation in returns to different degrees, while focusing on early career outcomes misses the effect of different educational tracks on the trajectory of earnings throughout graduates' careers. By estimating the returns to specific degrees over the lifecycle, we will be able to show how these choices affect earnings at different ages; identify degrees which offer insurance against sudden changes in earnings; and show how degrees affect the resilience of graduates' earnings to recover from earnings or unemployment shocks.We will exploit rich administrative data to develop flexible models of earnings dynamics and use these to simulate the lifetime earnings of recent cohorts of graduates. In addition to the LEO data, we have been granted new access to tax records from earlier cohorts that provides more than 10 years of earnings history for more than 12 million people up to their mid-forties. This large dataset with long panels of earnings enables us to estimate more flexible models of earnings dynamics than has been previously possible. We will investigate how earnings persistence and resilience to macro-economic shocks vary across different types of students, thus extending existing knowledge of earnings dynamics and improving the accuracy of lifetime earnings simulations.We will combine these simulated earnings profiles with the IFS's tax and benefit simulator and a model of student loan repayments to estimate the impact of degrees on lifetime tax and student loan payments and benefit receipts. This will significantly improve estimates of the wider social returns of different HE degrees, and allow us to estimate the impact the tax, benefit and student loan systems have on the private returns to different degrees.BenefitsBetter measures of the returns and public finance impacts of different HE degrees will benefit both students choosing education routes and governments deciding how to target funding within the sector. Our work will also contribute significantly to the academic literature on the returns to higher education, by highlighting variation in returns to different undergraduate and postgraduate courses and by advancing understanding of wider returns by looking at differences in earnings dynamics. The lifetime earnings methodology we develop will also benefit future academic and policy-focussed projects using LEO to investigate the long-run effects of policies.