How the cost of a degree could last for a lifetime

Three years at university will cost a fortune and all the time you're losing out on pay, says James Daley

If you don't get the grades you're hoping for when this year's A-level results come through the letterbox on Thursday morning, it may not be the end of the world. From a purely financial perspective, the value of going to university is no longer nearly as great or as obvious as it once was.

With more than one in three sixth formers now moving onto university, compared to just one in eight 25 years ago, degrees are a much more common currency than in the past. And with the controversial university top-up fee system being introduced next year, the costs of higher education are about to rise from expensive to crippling.

According to the Government's Department of Education and Skills, today's graduates can expect to earn a modest £120,000 more across their entire lifetime, than those with two A-levels who go straight into employment. A similar piece of research, conducted just 10 years ago, suggested this premium used to be in excess of £400,000.

Once you've taken the expense of university into account - which, according to NatWest, will average around £28,600 for each student for a three-year degree course in England - the decision to go to university is no longer a no-brainer. Furthermore, if you add on the extra £2,000 a year in tuition fees that most students will have to pay from next autumn (in addition to the £1,000 a year they already pay), the cost of a degree rockets to almost £35,000.

An academic paper, published earlier this year by Professors O'Leary and Sloane of Swansea University's economics department, suggested the situation may be even bleaker for those who choose the wrong degree.

The average lifetime earnings of a man doing an arts degree, for example, is now just £22,500 greater than someone who stopped education after their A-levels and went straight to work. If you compare this figure to the £28,600 that NatWest estimates it costs to do a degree, then it would appear that, financially at least, the average male arts student could end up worse off from going to college.

The Government admitted last week that the next generation of graduates are likely to be paying back their debts for some 15 years after graduation.

However, those who choose to skip university and go straight to work will not only side-step this crippling debt, but will also have three years of earnings under their belt before their peers at university have even taken their first steps up the employment ladder.

A high school graduate starting on a modest salary of £15,000 at 18 years old is likely to have earned more than £50,000 over the three years that would have spent at university.

Combine this with the average £13,500 in debt, which Barclays says most graduates will finish their degree with, and those who go straight to work could be more than £60,000 better off by the time than their school friends by the time they finish uni.

Ann Marie Baker, NatWest's head of student banking, admits that she has started to see a change in attitudes amongst young adults over the value of university. "Some sixth formers are definitely thinking twice about whether or not to go to university because of the cost," she says.

"University is not for everyone, and there are some very successful people out there who don't have degrees." Sir Richard Branson, John Major and Sir Winston Churchill to name but three.

In reality, however, deciding whether or not to go to university is about much more than the pure economics. Although 15 years of debt may not sound like much fun, there are dozens of professions which you simply won't be able to get into without a degree. And even if these pay less than some jobs for which you need no qualifications, they are likely to be far more rewarding.

They can of course make sense financially too. For the less common and more specialist degrees, the increase in average earnings is much more tangible. Taking a maths and computing degree - whether you're male or female - will increase your lifetime earnings by more than £220,000 according to Swansea's research. While women taking a degree in education could earn almost a quarter of a million pounds more than those who quit education at 18.

"It really depends on what you want to do with your career," continues Baker. "If you want to be a doctor, dentist or vet - then its basically impossible to get into those professions without a degree. And a degree can also be a prerequisite for many corporate jobs."

This is another important point. Although degrees may be devalued due to the large proportion of the population who now have them, there are still a large number of employers who will not look at potential recruits unless they have been to university - even if the job in question does not necessarily need a graduate to fill it.

Alison Hotson, the chairwoman of the Association of Graduate Recruiters (AGR), says that for many employers, a degree represents much more than the qualification that comes at the end of it.

"From an employers perspective, it's more about people widening their horizons, opening doors for themselves, and demonstrating that they can set out to do something and achieve it," she says. "The life skills that students acquire from going to university are often the real attraction for employers.

"Graduates also tend to learn and develop on the job much quicker than those who have not been to university."

The fear of being frozen out from the employment market if you don't take a degree is certainly one factor which keeps students enrolling. And if the costs appear prohibitive, there are a number of ways of getting financial assistance, or keeping fees to a minimum.

One option is to enrol with the Open University - where applications have trebled over the past decade. Here, courses cost just £500 a year, and can be taken from home - leaving students free to continue living with their parents, and to fit their studies around a part or even full time job.

Alternatively, there are an increasing number of vocational qualifications - which can be taken as night classes, or at students' convenience - which open the doors to many professions, and side-step the need to undertake a full course.

And if your heart is set on going to university, the Government will provide financial assistance for those whose families have a joint income of less than around £37,500, while many universities offer a number of bursaries, even if your family is too well off for you to qualify for state assistance.

Finally, if you're lucky enough to live in Scotland, then you don't have to pay for university at all if you take your degree north of the border. While if you decide to take your degree in England, there are still grants to be applied for from the Scottish education authorities.

As the costs of higher education become a normality in the UK, rather than a shock, more parents are also likely to begin to make provision for their children when they are younger.

Paul Ilott, a financial adviser from Bates Investment, the Leeds-based financial advisers, estimates that for a child born today, the cost of a three-year degree in 18 years time will not be far short of £50,000. However, he points out that parents who put just £125 a month into an equity based savings account for their child would have this covered - and this is based on the assumption of very low equity returns over the next 18 years. The Government hopes that this is what many parents will use the new Child Trust Fund accounts for.

But if your parents won't pay for you, no one will give you a grant or a bursary, you're not convinced by the economic arguments- and you still believe university is the right path to take - don't be put off simply by the cost.

As a student, borrowing money is easier than at any time in your life. As well as student loans, your bank will be happy to hand you a sizeable interest free overdraft, in the hope that you'll one day be a wealthy customer with them.

Although £15,000 or even £20,000 in debt is a daunting figure, in the vast majority of cases, even this amount of money is still justified in terms of the long-term gain. Also, the beauty of student loans is that you don't have to pay them off until you can afford to. If you're earning less than £15,000, you don't have to pay a penny. In other words, the cost of higher education makes it worth thinking twice before you commit to college, but don't let it discourage you entirely.

'I thought about college, but I wanted to earn some cash'

Matt Lloyd is a 28-year-old sales manager who now works for Selestia, a financial services firm that is based in St Albans, Hertfordshire.

After staying in full-time education until he was 18, Matt decided to buck the trend and head straight to work, rather than follow the path chose by most of his friends, who were heading off to university to do various courses.

"It just wasn't really for me," he says. "I didn't think university could offer anything to me that I couldn't get from the world of work."

Matt started his career working in the insurance industry for Norwich Union, before moving onto Selestia a few years ago. During his 10 years at work, his savings have helped him to buy two properties in York, one of which he rents out . The other was bought for his grandmother to live in.

Along with his rental income and including the commission he earns from deals done at work, Matt now makes around £60,000 a year.

His total package is worth a great deal more than the benefits enjoyed by many of his friends who went to university. And that's not simply because they have been working for three or four years less than him - in the financial services industry, Matt's earning potential remains high, even without any university qualifications.

"I never felt I was missing out because I got to go and see my friends at university - and enjoy the college lifestyle while they were there," he adds. "But I also got to go and earn some money at the same time."

Matt says he has never had any regrets about his decision, and with two properties under his belt, he's already saving for a third place.

Meanwhile, many of his friends have yet to get a foot on the ladder.