3. Financial benefits

November 12, 2004

UNIVERSITY FUNDING

Postgraduate education is seen as one of the few lucrative areas for universities. But it is difficult to assess its full economic benefit because a lack of transparency in teaching costs makes it hard to do a proper cost-benefit analysis.

Some facts, however, are clear. Between 1998-99 and 2002-03, income from fees charged to overseas students rose by £449 million. The bulk of this money will have come from postgraduates. Over this time, the UK sector's total revenue increased by £3.449 billion. So over a period when overseas student numbers have been rising at a rate that will be hard to sustain indefinitely, their fees accounted for just over one eighth of overall revenue growth.

If the UK higher education sector is to continue its rate of expansion, overseas postgraduates may help some institutions to fund that growth. It is likely that for most institutions, however, overseas fees will not by themselves underpin the levels of revenue rises seen in recent years.

There is good evidence that non-publicly funded teaching is in surplus.

This is teaching not paid for out of the public purse. The 1999-2000 data for the Treasury's transparency review showed a surplus of 30 per cent on non-publicly funded teaching, most of which would have been in postgraduate education.

Exactly how much is difficult to say because remarkably little is known about the costs of taught postgraduate provision. English funding allocations are dependent on the level of funding available and the number of students. They are not related to the costs of provision, so institutions are free to set fee levels with an eye on the market rather than on costs.

In 2003, the Higher Education Funding Council for England undertook a survey of fee levels for taught postgraduate students, though it did not cover overseas students or students for whom Hefce has no funding responsibility. It showed huge variation in fees. On all business courses, not just MBAs, fees exceeded £6,000 on average, whereas for education and languages they were about £2,500.

For research degrees, the Hefce research funding method means that research students in top-rated research departments attract more funding to their institutions than those in lower rated departments. As a result, the economics of research-degree provision vary between departments as well as between institutions. This goes some way to explain the concentration of research students in a small number of institutions.

Many research students have their fees waived by their institution.

Nevertheless, a majority have their fees met from public or private sources.

As with taught degrees, very little is known about the costs of providing postgraduate research degrees. Hefce is funding a project designed to establish those costs. If that study allocates a share of the estates cost and staff costs to postgraduate research students, it is probable that existing funding streams will be shown to be inadequate. Unless funders respond by increasing their level of resource - through increased funding council subsidy and/or higher fees for research council-funded students - universities will have to consider carefully whether to continue providing such degrees.

The Government's recent science strategy will mean a significant move towards establishing a four-year study period as the norm for UK government-funded students - a development likely to increase costs still further.

The impact of overseas postgraduates on individual university finances varies enormously. The London School of Economics heads the universities at which overseas postgraduates form the highest proportion of the overall student body. It is followed by Cranfield, Essex, Surrey and Oxford universities and the University of Manchester Institute of Science and Technology (which is now merged into Manchester University). Overseas fees (undergraduate and postgraduate) account for a third of the LSE's revenue, nearly a fifth of Essex's and more than 10 per cent of Umist's.

In general, the most prestigious universities have the highest proportions of postgraduate students and the highest proportions of overseas students.

This makes simple conclusions about the degree of exposure to any downturn in overseas student recruitment impossible.

It is highly unlikely that the likes of Oxford, Cambridge and the LSE would be the first to be affected by any drop in demand. And it would be naive to suggest that their dependence on often volatile sources of income that carry risks for other institutions - research funding and overseas students - is particularly risky for these fortunate institutions.

But for less well-positioned institutions, the potential volatility of the overseas student market might be an issue if they become too dependent on income from such students - especially if recruitment were concentrated in a small number of key countries.

EARNINGS AND THE JOBS MARKET

UK holders of postgraduate qualifications tend to earn more than holders of first degrees. A recent study found that males with postgraduate qualifications typically earned 4.7 per cent more than those with undergraduate qualifications. The premium enjoyed by females was 10.4 per cent.

Students with postgraduate qualifications in 2002-03 enjoyed an average premium of 28 per cent after six months compared with first-degree graduates, although this may reflect the professional focus of postgraduate courses, which is likely to mean that fewer postgraduates spend time in casual or low-status employment immediately after graduating.

An increase in the number of people with postgraduate qualifications seeking employment in the UK is likely to have an effect on the labour market. Unsurprisingly, the available evidence suggests that this impact would be felt most strongly in professional occupations.

In 2001-02, a quarter of first-degree graduates in employment six months after graduation were classified as being in professional occupations. The equivalent figure for postgraduates was 76 per cent. These figures are affected by PGCEs, which are in many ways untypical of postgraduate qualifications. But even if teacher training is discounted, the contrast between postgraduate and first-degree qualifiers is still striking.

In addition to traditional graduate and postgraduate professions, other career fields, particularly those in the process of becoming graduate occupations, will look increasingly to universities to provide accredited training for their members. It is, therefore, to be expected that some existing training provision will move into the postgraduate higher education sector. Less formally, a postgraduate qualification may become the norm in occupations where this has not previously been the case - even where no formal professional accreditation is involved (for example, social research).

None of this means that postgraduate qualifications are a passport to a professional career. Holders of taught postgraduate degrees cannot be presumed to be an elite among graduates, as their first-degree results do not differ greatly from the average of all graduates. And employers have very good means to differentiate between graduates on the basis of academic achievement or general ability without reference to postgraduate qualifications.

Postgraduate qualifications will be valuable in the job market if they demonstrate specific skills and knowledge, but not as an indicator of general ability.

Postgraduate education in the UK
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