Education: Negative Graduating Premiums?

I have been studying “negative graduating premiums,” a phrase I picked up in the United Kingdom. It compares the incomes of those who take on degrees versus those who learn a skill. Which fares better in the short term and long term? Do graduates earn less than their hand-skilled counterparts? If so, that is a case of a negative graduating premium. In simple terms, these can be explained as making educational investments that don’t yield commensurate returns.

How much more can you earn with your degree doing the same thing someone else without a degree can do? If that person can earn more or the same, then your degree has no value.

You should know that not all degrees are equal. As fees differ, so do the demands of learning in some of these institutions. As such, graduates from certain universities can say they have been through “hell” to get that degree. To what end? The intended goal with such fees and torture was to ensure that the job market appreciates that investment and rewards all that went into it. However, this isn’t ALWAYS the case.

A degree costs a premium and doesn’t ALWAYS guarantee a premium outcome in life in every field or role. In my book, What the future knows about the past, I write about the burden of skipping a degree. In most countries, the goal is to get a degree in anything. I recently read a report pointing out that graduates with degrees in many of the Arts have the most significant negative graduating premiums.

Far from being the only issue, higher education needs to be fixed. I take the time to review the student loan struggles across most countries, as detailed in the analysis below. I provide a basic assessment of options to fund university education in the United States, United Kingdom, Nigeria, South Africa, South Korea, Australia, Germany and Sweden.

The United Kingdom: Rising cost and capped student loans.

In 2020, students graduating from universities in the United Kingdom with student loans had raked-up debts averaging 40,000 pounds in England, while the rest of the United Kingdom averaged about 21,000 pounds (for Wales, Scotland and Northern Ireland). ~Statista

With more than £17 billion in loans to students each year, the total outstanding debt reached £140 billion in early 2020. While this is a fraction of the value of student debt in the US, it is still significant for the size of their economy. In Africa, Asia and a few other parts of the world, Student debt isn’t an issue because loans are so hard to get. Parents often sell their property or turn to rich relatives to help fund their children’s school fees.

The reality is that students who do not acquire scholarships before enrolling in western Universities may likely end up with student debt. Only those who have the backing of financially capable family members are exempted from this. Imagine having a negative graduating premium on your degree (earning less than someone who learnt that same skill through apprenticeship) and then having to still pay up on loans owed to obtain that degree.

United States: Ballooning Loans No One is Motivated to Touch.

$1.41 trillion is the number owed by students (former and current) in the United States. It is more than the estimated credit card debt in America. People owe more for schooling than they do for shopping.  Credit card debt in the US hits an all-time high of $930 billion. Thu Dec 3, 2020. ~CNBC.

Kamela Harris and Joe Biden (it is said to be Kamela’s idea) have floated a debt forgiveness program for beneficiaries of the Pell Grant loans in the past. This will forgive the debts of those awardees who start a business that “operates for three years in disadvantaged communities”.

Degree Loan versus the Degree.

Whether or not these student loans are forgiven, the question of the need for these loans remains. In addition, we need to question what career paths need those degrees and which do not.

Question: Do you need a degree in Computer Science?

To go to school for years only to come out and compete with those who attended a bootcamp is a hard sell. This is the reality of many graduates, computer science being a prime example.

However, this isn’t the only issue. To understand negative graduating premiums, you must look at the earning power of those who started early and developed careers in construction, plumbing, welding, or as electricians. Many of them earn on par with many graduates, often out-earning them.