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With figures from the ONS showing that 31% of graduates in 2017 were overeducated for the role they occupied, the question that has to be asked is whether a university degree is still worth something.
The cost of a degree
The cost of a university degree in the UK is not insignificant. Tuition fees for English universities can reach £9,250 a year, and with undergraduate programmes typically lasting three years you are looking at a total cost of £27,750.
Then you have to factor in the cost of accommodation and living expenses. According to Times Higher Education, average accommodation costs for the three years equate to £14,625.
Tuition fee loans are available as well as maintenance loans, but this means that a new graduate could leave university owing between £35,000 and £40,000.
Yes, the cost of a degree is high, but the justification has previously been that graduates then have more earning potential than non-graduates. However, the latest figures from the ONS indicate that graduates are not utilising their education.
Higher education is supposed to give graduates an advantage over non-graduates. Previously it has been a tick in a box that opened doors to higher-paid roles. But the evidence that 34.2% of those who graduated after 2007 have more education than their role requires implies that a degree is no longer the stepping stone it used to be.
The counter argument is that there are still some companies that require a minimum education level for a role. Also, there are benefits of going to university that don’t necessarily equate to wage. And the key term of ‘transferable skills’ that every graduate trots out in their post-university job interviews does still stand true.
Student loan repayments
If there were no financial impact of a university degree, then going to university would be a simple decision for those wanting to further their education. However, with the costs so high now, prospective students need to consider the financial impact of a degree, especially considering the possibility that they may end up in a job role that does not require that level of education.
While student loans are designed differently from normal loan products, repayments still need to be made. You are only required to start loan repayments if you are earning more than £25,725 a year. With the average starting salary for a graduate thought to be around £23,000, it may be a few years before you need to make loan repayments.
Once repayments start, you will be required to pay 9% of everything you earn above the threshold each year. Repayments will be taken directly from your salary.
Will a student loan stop me getting credit or a mortgage?
The biggest implication of a student loan is that you are tied into loan repayments as soon as you are above the threshold. So if you are looking to get on the property ladder or have other financial commitments such as credit card payments or car payments to make, you will need to factor your student loan repayment into your monthly outgoings.
The good news is that student loans do not appear on your credit history, which means that unless lenders specifically ask for the information, they will not know the size of your loan. In most credit card applications, a student loan is not considered a factor.
However, in terms of applying for a mortgage, lenders will typically ask whether you are carrying a student loan. This is purely to ascertain how much you have to repay each month, and therefore whether you meet the affordability criteria for the mortgage.
Whether or not to progress to higher education is purely a personal choice. It depends on what industry you want to enter and whether a degree is required or advantageous. The key takeaway is that the earning potential from having a degree seems to be less that it used to be for some.
While a degree can mean taking on debt, a student loan won’t hold you back from borrowing in the future. Credit card and other loan options are not impacted solely by having a student loan, and while mortgage lenders may take a closer look at what you owe, it doesn’t necessarily mean you won’t be approved.
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