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The value of tertiary education


Chandan Hegde

By

January 19th, 2015


Chandon Hedge emphasises the importance of tertiary education despite increasing debt for university students.


The recent Australian budget proposal to deregulate university fees, and possibly raise them, has ignited debate about whether tertiary education is still valuable. With unemployment increasing, is it still feasible to incur large debts just to get a university education? This article will argue that there is still great value in pursuing higher education in Australia, and high school students should be urged to consider the long term benefits of studying at university.

Purely from the financial standpoint of the worth of tertiary education, the two key factors to investigate are employment statistics and salary differences. The two charts shown summarise the key differences experienced with different levels of education.

Firstly, considering Figure 1.1, the benefits of tertiary education are clearly visible, with the starting salary of graduates higher, compared with non-graduates, by approximately $20,000. Furthermore, through ones’ life we can see there is a general trend of this gap increasing, leading to a total income difference of approximately one million dollars. The value of tertiary education can further be summarised by the present value calculation. Since the interest charged upon HECS debt will now be tied to the 10 year government bond rate, we will take the generous assumption that it will average at approximately 5.0% and use that as the discount rate. Finally, using the average salary differences between graduates and non-graduates, the present value of this difference is computed to be approximately $315,000.

Now, let us compare this figure to the cost of a bachelor’s degree post-deregulation. Due to uncertainty in university actions, responses by students and possible new entrants, it is not possible to accurately quantify the future cost of a bachelor’s degree. In light of this, however, this article will use the generous estimates that universities will charge students 20% more than the cost of an unsubsidised degree. Using NATSEM predictions, we find that the average cost of a degree would be approximately $70,000[3]. Computing this into net present value would yield $245,000; this figure represents the average advantage that one with tertiary qualifications reaps over one without. We can thus conclude from these estimations that, for the average student, there are still significant returns to tertiary education, despite this deregulation scheme.

Along with this, Figure 1.2 clearly shows that from 2008-2012, unemployment is approximately 1% higher for non-graduates as compared to those who completed tertiary education. This is further emphasised by Bruce Guthrie from Graduate Careers Australia, who projects that in the long run, the unemployment rate of non-graduates will be double that of graduates[4].

Figure 1.1: Salary Differences[1]

 

Figure 1.2: Unemployment Statistics[2]

Despite this conclusion, it must be acknowledged that certain parties will be more adversely affected than others as a result of deregulation. For example, NATSEM expects that science graduates will feel the biggest burden of fee increases, projecting maximum increases of up to $110,000[5], which is still less than the present value of education. This is significantly higher than the costs of an average degree. Furthermore, female graduates who often take maternity leave are burdened by increasing HECS debt during periods in which they are not working. Although deregulation certainly disadvantages these parties, even with the exaggerated estimates made in the analysis, the net present value would still be approximately $200,000, again reinforcing the value of tertiary education.

It is thus clear that despite the increasing cost of education, the benefits of education still far outweigh these costs. This analysis is even truer as we move into a future where more unskilled jobs are being offshored, and demand for skilled labour will only increase, thus likely further widening the benefits received by graduates over non-graduates[6]. From a financial standpoint, tertiary education in Australia remains a sound investment, and should be accordingly marketed to prospective students in this manner.

 

Reference List

De Laine, Craig, Laplagne, Patrick, & Stone, Susan, “The Increasing Demand for Skilled Workers in Australia”, Australian Government Productivity Commission, http://www.pc.gov.au/research/staff-research/skilled-worker-demand (accessed August 7, 2014)

McGrath, Pat, “Employment among recent university graduates hits 20-year low”, ABC, http://www.abc.net.au/worldtoday/content/2014/s4057073.htm (accessed August 7, 2014)

NATSEM, “Education and Innovation in Australia”, AMP.NATSEM, http://www.natsem.canberra.edu.au/storage/AMP.NATSEM%2032%20Income%20and%20Wealth%20Report%20-%20Smart%20Australians.pdf (accessed August 8, 2014)

OECD, “Education at a Glance”, OECD, http://www.oecd.org/edu/Australia_EAG2013%20Country%20Note.pdf (accessed August 8, 2014)

[1] NATSEM, “Education and Innovation in Australia”, AMP.NATSEM, http://www.natsem.canberra.edu.au/storage/AMP.NATSEM%2032%20Income%20and%20Wealth%20Report%20-%20Smart%20Australians.pdf (accessed August 8, 2014)

[2] OECD, “Education at a Glance”, OECD, http://www.oecd.org/edu/Australia_EAG2013%20Country%20Note.pdf (accessed August 8, 2014)

[3] NATSEM, “Education and Innovation in Australia”, AMP.NATSEM, (accessed August 8, 2014)

[4] Pat McGrath, “Employment among recent university graduates hits 20-year low”, ABC, http://www.abc.net.au/worldtoday/content/2014/s4057073.htm (accessed August 7, 2014)

[5] NATSEM, “Education and Innovation in Australia”, AMP.NATSEM, (accessed August 8, 2014)

[6] De Laine, Laplagne & Stone, “The Increasing Demand for Skilled Workers in Australia”, Australian Government Productivity Commission, http://www.pc.gov.au/research/staff-research/skilled-worker-demand (accessed August 7, 2014)

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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