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Last Updated: Friday, 4 November 2005, 23:58 GMT
Universities prepare for competitive times
By Mike Baker
BBC News education correspondent

The ancient Chinese curse - "may you live in interesting times" - certainly applies to universities and students.

A conference on higher education in London this week suggested that universities will have to be very nimble on their feet if they are to cope with all the changes bearing down on them.

Just look at some of the challenges: the start of variable, or "top-up", fees in England next year, the prospect of big changes to admissions procedures, including the probable start of post A-level admissions from 2008, and intensifying competition from Australia and continental Europe for the lucrative overseas student market.

On top of this comes the warning that the growth in the number of 18-year-olds in the British population, which has helped boost campus expansion over the past decade, will before long start to go into reverse.

Indeed, numbers will reach a peak in 2010, and will then fall quite dramatically. By 2019 there will be something like 120,000 fewer school-leavers in the population than a decade earlier.

That could leave some university departments struggling to fill their places.

Students also face a challenging future. The latest evidence on graduate earnings suggests that the financial advantage bestowed by a degree - the so-called "graduate earnings premium" - is diminishing.

Taken together, these factors could create a doomsday scenario for universities in which school-leavers decide university is no longer a secure financial investment just as their overall numbers go into decline.

'New' graduate jobs

So is this gloomy scenario justified?

The evidence of the decline in the graduate earnings premium comes from a report called "Class of '99", which looked at how graduates who left university in 1999 were doing in the job market four years later in 2003.

It compared this cohort of graduates with a group that left university in 1995.

Some of the results for the class of 1999 were encouraging: almost all were in work of some kind, and over two-thirds were in jobs that related to their long-term career plans.

However, that left another one-third of students who, four years after graduating, were not on track for the career of their hopes.

Half of these - 15% of the total - were in "non-graduate occupations", that is jobs that do not require a degree as an entry qualification.

With a 300% increase in student numbers between 1984 and 2003, there has been a massive rise in the numbers of graduates entering the job market.

The number of graduate level jobs in the economy does not, of course, remain static.

Generally the trend of most modern economies is for a greater demand for graduate-level skills, and many new types of these jobs have been created in recent years.

These include the so-called "new graduate jobs", such as those in marketing and advertising, software development, and clothing design.


However, even with these new graduate opportunities, there are signs that supply may be exceeding demand.

The "Class of '99" study found that in earning power the 1999 cohort failed to keep pace, in real terms, with the 1995 graduates.

The report says this "may be the first indication" that the graduate earnings premium is diminishing.

The detail suggests that, four years after graduating, the 1999 cohort was earning just over 10% less than the 1995 group, after stripping out inflation.

This does not mean that the financial dividend from a degree has disappeared altogether.

However, at this week's conference, it was suggested that the lifetime careers dividend of a degree is now down to about 120,000.

This is about one third of the figure the government was using, just a couple of years ago, to justify the introduction of higher university tuition fees.

As yet, it is too soon to know whether the new "variable fees" of up to 3,000 a year (payable after graduation) will have an impact on recruitment for this year.

However, the earliest set of figures on applications for courses starting in 2006 suggest a small decline, year on year, of 1.8% from home students.

Perhaps graduates are recognising that the writing is on the wall and that, if they want an edge in the career market, they need more than an undergraduate degree

These are early days and not much can yet be read into this figure. However, any decline in applications would be worrying since, for now, the number of 18-year-olds is still rising.

Oddly enough, despite all the media coverage, it seems that most people are still hazy about the details of the new financial arrangements for students.

Admittedly, they are complex and some students from low-income homes may well be better off under the new system because the new up-front grants and bursaries will outweigh the disadvantages of higher fees.

However, the combination of the higher cost of getting a degree and a reduced graduate earnings premium could have a serious dampening impact on university applications.

Postgraduate growth

Much will depend on what happens to graduates' job prospects over the next few years. Again, the indications are cause for concern.

The UK Graduate Careers Survey found that just 36% of 2005 finalists at the country's top universities expected to start a graduate job after completing their degree course.

While it has always been the case that many students prefer not to go straight into a career job, that represents a fall from 49% in the same survey for 1998.

Perhaps graduates are recognising that the writing is on the wall and that, if they want an edge in the career market, they need more than an undergraduate degree.

That could explain why no fewer than a quarter of final year students planned to take a postgraduate course.

Expanding the postgraduate market could, of course, be one solution for universities when the number of school-leavers starts to decline.

Other solutions might include recruiting more mature students, more part-timers and distance-learners, and exploring new international markets, such as India.

However, if there is one strong conclusion to draw from these various statistics, it is that the government and universities will have to do a strong selling job on the value to the student of higher education.

That includes ensuring school-leavers have a better understanding of the financial help that is available to them and ensuring they feel they are getting value for money from their courses.

Finally, to conclude on a more positive note, the "Class of '99" report showed that 96.5% of graduates were satisfied with their decision to go to university.

Fortunately, it seems, they are aware that going to university is about more than just boosting future earnings.

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