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Upfront Costs, Lifelong Gains: The Investment Case for University

April 19, 2024
Editor(s): Yolanda Ye
Writer(s): Michael Chen, Romail Ahsan, Jenny Wang

Every year, Year 10 students in Australia face a critical decision: pursue further education or enter an apprenticeship. This choice has lasting impacts on their income potential and career trajectory. This article explores the return on investment (ROI) of a university degree in the Australian context. We argue that despite the upfront costs, university degrees offer significant social benefits in the long run. Additionally, the recent rise in immigration raises questions about its impact on individuals’ income potential and educational attainment. 

Individual Benefits: Beyond the Bottom Line

For the individual, the return on investment (ROI) on tertiary education is often positive, though not without initial costs. While the average tuition fees for an undergraduate degree in Australia fall between $20,000 to $45,000, student loans like the government’s HECS–HELP can defer the student’s financial burden until later in their career when they begin earning beyond a certain income threshold. The opportunity cost of time could also be considered in regards to the return of investment for undergraduate students, who are occupied with their studies and consequently miss out on opportunities to work as much as they might have preferred. In fact, the typical full-time student works only 12 hours a week and is expected to earn around $6000 lower over their period of study. Yet, research by the Productivity Commission has shown that the average income gain for those with an undergraduate degree is roughly 30% higher than those without. Moreover, holders of a Bachelor degree generally experience a steady growth in their income over the decade following their graduation, with the median salary eventually increasing by 88%. Thus, while individual students may face lower earnings and tuition costs during their studies, they will likely be compensated with higher earnings and job growth later in their careers. Furthermore, the return on investment of a university degree for the individual extends beyond financial considerations and burdens to greater personal freedom. Research has shown that those with a certificate, diploma or degree are 85% more likely to be employed than those without a qualification, signifying greater access to a wider range of careers. 

Social Benefits: Knowledge, Innovation and Growth

Whilst the returns on investment of a university degree is often attributed to the individual’s gain, society and the general public also experience the impact of higher education. Research output can be measured by the publications generated from tertiary institutions, with over 370,000 journal articles submitted for evaluation in Excellence in Research for Australia (ERA) for the period of 2011 to 2016. Such a breadth of knowledge and discovery released into the academic landscape elevates society’s overall quality and advancement, with profound implications for cultural and social developments in the future. University-driven research fosters innovation in critical fields like medicine and technology, paving the way for a healthier and more modern nation. Beyond research, society also benefits from the increased skill level and earnings throughout the economy, with the spillover effect of boosts in productivity in other individuals arising from degree-holders spread across firms

Financially, the government sustained high spending in higher education having almost tripled their outlays from $6.9 billion in 1989 to $20.4 billion in 2020-2021 (in 2020 dollars). Despite coming out of taxpayers’ pockets, this investment proves to pay itself back as it is estimated that for every dollar invested into tertiary research, five dollars is returned to GDP. It can be seen that such a steep rise in spending on education is justifiable considering the long-term returns, especially given that the majority of spending on loans can be retrieved through an internal tax system that draws income from graduates with student loans earning beyond a certain income level. Maintaining spending in such a productive sector like education is pivotal to creating growth across facets spanning the future gains from research and the knowledge and skill base of our future workforce. 

 

Australian born Immigrant
Skilled (minimum bachelor’s degree) $1,440 $1,234
Unskilled (basic vocational or secondary education) $1,009 $986
Population Median $805 $963

Table 1: Median Weekly Incomes for Skilled and Unskilled workers

Data adapted from the ABS

 

Immigration and Educational Attainment: A multifaceted relationship

In exploring the dynamics among education and income within Australia, it’s essential to broaden our perspectives. While Lamb (2018) has studied the education-income relationship, a deeper dive into how immigration influences educational achievement is necessary. As highlighted by Marks (2017), factors such as academic performance and socioeconomic background significantly shape educational outcomes and by extension, income. However, immigrant students encounter unique challenges, including language barriers and disparities in education systems, which can impede their academic progress. This raises the crucial question: to what extent does immigration status impact educational attainment and subsequent income levels? As shown in Table 1 above, the median weekly income for the general population is lower when compared with the general immigrant population. Given that almost 51% of permanent migrants held at least an undergraduate degree compared to the Australian population average of 29% (ABS, 2021), this result is inline with our earlier findings. Despite this, Australian born individuals have higher median incomes with the difference increasing when skill level increases. Note, unskilled does not include laborers which require certification or licensing to trade. Given this, we can see that median income is greater as the level of education increases, and a population with higher education may overall have higher median incomes. However, we must view these findings through a critical lens. It follows that, immigration policy to some extent would favor skilled migrants where labor shortages are apparent, thereby driving up wages. Further exploration of this is beyond the scope of this article though it emphasizes the need for further research to unravel the intricate relationship between education and income.

 

In conclusion, while higher education presents an investment with significant societal and individual benefits, the return on investment can vary depending on factors like immigration status. Despite the upfront costs and strain on government resources, the long-term gains in career opportunities, innovation, and a skilled workforce justify continued investment.  For Australia’s thriving and diverse society, ensuring equitable access to higher education remains paramount. This fosters not only individual well-being, but also the collective prosperity of the nation.

 

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Yolanda Ye
Editor
Michael Chen
Writer
Romail Ahsan
Writer
Jenny Wang
Writer