IFS - Creative arts degrees cost taxpayers 30% more than engineering degrees

6 Mar 2019 02:39 PM

The current system of funding undergraduate education means that costs to government are highest for subjects where graduates earn the least, and lowest for subjects where they earn the most.

This is an unintended consequence of the English loan-based system, which costs taxpayers about £9 billion per cohort of undergraduate students, and in which only the highest-earning graduates pay most of their student loans back and low-earning graduates do not.

This means that taxpayers provide bigger subsidies to students who study arts and humanities – which typically result in relatively low earnings – than to those who study many science and engineering courses. For example, on average creative arts degrees (studied by 37,000 students per year) are about 30% more expensive for the taxpayer than are engineering degrees. The reverse would be true if we still had the funding system that was in place 20 years ago. 

These are among the results of new analysis which for the first time estimates the distribution of government spending, taking account of grants and unrepaid student loans, across subjects studied and institutions attended. It is important to understand these are not estimates of returns to the different degrees: some subjects and institutions may therefore receive large loan subsidies even if they are positively impacting the earnings of their graduates, because they happen to attract students that have very low earnings potential. Since the final costs will depend on actual earnings over the next 30 years, there is inevitably uncertainty about these estimates. But they are based on new administrative data giving precise details on actual earnings of previous cohorts of graduates and are likely to be the best estimates possible at the current time.

Our main findings include:

The report also considers what these figures mean for policy options:

Laura van der Erve, Research Economist at IFS and an author of the report, said:

‘Reforms to the higher education system over the past 20 years have meant that the strongest driver of taxpayer spending on each subject and institution is the earnings of their graduates, with most of the government subsidy to higher education mechanically accruing to low-earning graduates. While some level of subsidisation is a desirable feature of the system, there are serious doubts about whether the current distribution of spending aligns with the degrees that are most beneficial to society.’

Jack Britton, Senior Research Economist at IFS and an author of the report, said:

‘This research helps us to better understand the key implications of the 2012 tuition fee reforms: while university funding went up and graduate repayments became much more progressive, the government lost control of where its own spending was targeted. This was exacerbated by the fact that almost all courses charged the maximum tuition fees. We now see that of the £9 billion that the government spends on undergraduate higher education each year, more than £1 billion is on creative arts courses alone.’

Econometrics of valuing income contingent student loans using administrative data: groups of English students