A university education, as anyone who reads the papers knows, is about to become more expensive. But according to the Government, graduates will still be getting a good deal.

A key plank in the argument put by ministers in favour of variable tuition fees is that the benefits of a degree will continue to far outweigh the cost.

Alan Johnson, the higher education minister, said in a recent parliamentary answer that graduates could expect to earn pound;120,000 more over a lifetime than non-graduates. Graduates’ salaries were on average 50 per cent higher than those of their peers, he said.

But students thinking of going to university in the next few years might want to take a closer look at these figures. With numbers of graduates growing as the universities expand, is a degree worth as much today as it once was?

In financial terms, will such a qualification amply repay the estimated pound;15,000 debt with which future graduates will begin their working lives?

New evidence published last month suggests Britain’s graduate labour market is already becoming overcrowded. Our workforce is among the most over-qualified in Europe, according to Dr Malcolm Brynin, of the Institute for Social and Economic Research at the University of Essex.

Around 40 per cent of British employees have been educated beyond the requirements of the job they do, his research shows, compared with less than a quarter in Norway and Germany.

In future, a growing number of graduates will find themselves in jobs which do not require a degree. And this carries a financial penalty. Dr Brynin has analysed the effect of this trend on wages - and has found that male graduates, in particular, may find the pay gap between themselves and non-graduate workers is growing narrower.

This effect is particularly strong for those working in fields where a high proportion of employees are graduates. Figures compiled by Dr Brynin show the wages of men in these fields tend to drop as the proportion of graduate employees rises - by as much as pound;2.30 per hour.

Women, on the other hand, get more value from their degrees. Their pay is around pound;3 per hour higher if they work in what is often known as a “graduate job” than if they work in a non-graduate job. This is not because they earn more than their male fellow-graduates, they actually earn significantly less. But the gap between them and their non-graduate female friends is so wide that they would be far worse off if they had not been to university.

Dr Brynin says each prospective student should weigh up his or her individual chances of success rather than taking the Government’s 50 per cent figure at face value.

“Every individual has to take into account the likely rewards. If you are not going to get a good degree and a good job it’s possible it might take so long to repay the debt that you might never do it. It’s a risky investment - lots of people never even use their degrees,” he says.

So which students will find a university education financially worthwhile in this rather uncertain and frightening new world? A wealth of evidence is now building up to show the importance of choosing the right subject - and the right university.

At the LSE’s Centre for the Economics of Education, a number of recent research projects have tackled the issue. One problem with the Government’s 50 per cent figure, the centre’s researchers point out, is that it does not compare like with like.

The well-qualified 18-year-old who chooses not to go to university may well go on to earn a higher salary than a classmate who leaves school with no GCSEs or A-levels, for example. How much advantage would he or she really have gained from a degree?

The LSE team found that when they compared the fortunes of graduates with non-graduates who had two or more A-levels, the pay gap was much smaller.

For women, the advantage was 18.9 per cent. For men it was even lower at 14.9 per cent.

But for some graduates, the financial advantage of a degree is even smaller than this. An economics degree, for example, is worth far more than an arts degree. A female economics graduate, according to a review of recent evidence by the LSE, is likely to earn 40 per cent more than a woman with two A-levels. A male economics graduate will earn 27 per cent more than a man who chose not to go to university.

But a woman who studies an arts subject can expect to earn just 17 per cent more than her less well-educated counterpart. And a man who reads arts will gain an advantage of just 4 per cent.

Even this tiny advantage is dependent, the LSE researchers found, on which university the degree comes from. A university within the elite “Russell Group” confers a much higher earning power on its graduates than one lower down the academic scale, they said. Graduates from the top universities can expect to earn around pound;5,000 per year more than their counterparts from former polytechnics after a decade in the labour market.

Academics are not the only ones to have noticed these differentials.

Ministers have picked up on them too, and have used them to argue that a graduate with a high-earning degree from a prestigious institution should pay more. But Dr Gavan Conlon, an associate of the LSE’s Centre for the Economics of Education and co-author of its research on the subject, says potential students will be put off by differential fees.

“It is going to be a deterrent, there’s no question about that,” he says.

But he adds that even the level of detail in his own research will not enable each student fully to assess the potential benefits of a particular degree.

“There’s no way you can say, if you’re doing A-levels in French, English and German, ‘What will I earn if I do a degree in English? Is it going to be worth paying a couple of grand a year for this?’”

John Dunford, general secretary of the Secondary Heads Association, also fears more young people will choose not to go to university rather than incur long-term debt. But as a headteacher, he adds, he would point to other benefits of a degree that might not show up on a balance sheet.

“People are going to miss out on other benefits of going to university,” he says. “The advantage of spending three years in an academic community, developing your brains and analytical powers. Those things are of great use whatever job you take.

“But people will be choosing their degrees more with employment in mind in the future. And it will be harder to persuade the ‘don’t knows’ to go to university.”

Why leave school? Why stay on? The dilemma facing 16-year-olds and its policy implications includes research by Malcolm Brynin, Institute for Social and Economic Research, University of Essex and John Bynner, Bedford Group for Life Course and Statistical Studies, and Centre for Longitudinal Studies, Institute of Education, University of London, published by the Economic and Social Research Council.Does it pay to attend a prestigious university? By Arnaud Chevalier and Gavan Conlon, available from the Centre for the Economics of Education at www.cee.lse.ac.ukRates of return to qualifications: A summary of recent evidence, by Arnaud Chevalier and Gavan Conlon, available from the Council for Industry and Higher Education at www.cihe-uk.compublications_returns.htm

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