Britain’s graduates are confronting an increasingly punishing financial bargain: the prospect of surrendering as much as 71p of every additional pound earned in tax and student loan repayments, even as the earnings advantage traditionally associated with a university degree continues to shrink.
The warning comes in a new collection of essays published by the Institute of Economic Affairs, which argues that the country’s higher education system is failing to deliver adequate value to students or taxpayers.
The Higher Education Delusion: What’s Gone Wrong with the UK’s Universities?, edited by Professor Len Shackleton, brings together 10 contributors who examine the economics, academic standards and political culture of a sector that has expanded dramatically over recent decades.
At the heart of the argument is a student finance system that, critics say, increasingly resembles an additional tax on work.
Peter Ainsworth, a higher education consultant, calculates that graduates earning between £29,385 and £50,270 can face an effective marginal rate of 37% once income tax, national insurance and student loan repayments are combined. For those earning between £100,000 and £125,140, the interaction between income tax, the withdrawal of the personal allowance, national insurance and loan repayments can push the marginal rate to 71%.
The figures underline the unusual burden facing some higher earners: an increase in salary can result in a substantial proportion of the additional income being absorbed by the state and loan repayments.
The system is also failing to generate much more money from graduates despite the growing number entering repayment. Total repayments in England rose by just 0.1% in cash terms in 2024-25, according to Ainsworth. He warns that as much as half the value of student loans could eventually be written off, against a Department for Education projection of 29% in 2024.
The financial case for attending university is weakening at the same time. Economist Julian Jessop finds that the graduate earnings premium for people aged 21 to 30 has fallen from about 35% in 2007 to 25% in 2024. Around three in 10 graduates are now employed in jobs that do not require a degree.
Jessop argues that an earlier estimate suggesting one in five graduates would have been financially better off had they not attended university is likely to understate the problem today. The implication is uncomfortable for a generation encouraged to regard higher education as an almost automatic investment in future prosperity.
Questions about the value of degrees extend beyond earnings. Professor Michael Ben-Gad’s analysis of UCAS data shows that average entry scores across seven major subjects fell from 135 points to 124 between 2019-20 and 2023-24.
Meanwhile, the proportion of students awarded first-class degrees has climbed from 7% in 1993-94 to 30% in 2024-25. Almost four in five finalists now receive either a first or a 2:1.
The combination of weaker entry scores and rising top degree classifications raises questions about whether academic standards have kept pace with the expansion of university places. The figures do not, by themselves, establish that teaching or student ability has deteriorated, but they add to concerns about the credibility of degree classifications.
The book also challenges universities over how they use the money collected from students. Shackleton estimates that about 20% of tuition fee income is diverted to subsidise academic research, often without students being aware of the arrangement.
Research funding itself comes under scrutiny. The 2021 Research Excellence Framework cost £471mn, while the proportion of UK research judged “world-leading” rose from 14% in 2008 to 41% in 2021. Shackleton questions whether this reflects a dramatic improvement in research quality or a system in which universities effectively mark their own homework.
The sector’s reliance on overseas recruitment is another vulnerability. International student fees accounted for 47% of all tuition fee income in 2023-24, leaving university finances exposed to changes in demand, immigration policy and international competition.
The contributors also highlight the roughly half a million “missing men” who have not entered higher education over the past decade, alongside concerns about political uniformity among academics. The left-to-right voting ratio among university staff is now more than 6:1, according to the book.
The proposed remedies are far-reaching: allowing financially unsustainable institutions to fail, making universities share the risk of student loans, concentrating research funding, strengthening free speech protections and opening the market to new providers. The contributors argue that artificial intelligence could accelerate the need for a different model of higher education.
Shackleton, an editorial and research fellow at the IEA, said the sector was in a “mess, economically, academically and culturally”. Young people had been told for decades that university was the surest route to a better-paid career, he said, but that promise was no longer being fulfilled for growing numbers.
“Students are taking on substantial debts, taxpayers are underwriting the costs, and universities face too little pressure to demonstrate that their courses deliver value,” he said.
Saqib Bhatti, the Conservative MP and shadow education minister, said universities remained essential to economic growth and modern Britain, but faced significant financial and societal challenges. He accused the government of offering too little support to the sector and called for urgent answers.
The book’s conclusions are likely to provoke resistance from universities, which will point to their contribution to research, skills, regional economies and social mobility. But its central challenge is difficult to dismiss: expansion alone is not a measure of success.
If graduates are paying more for degrees that deliver less of an earnings premium, while taxpayers shoulder a growing share of the cost, the question is no longer simply how many people should go to university. It is whether the system can justify the price.
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