A small note from the FT illustrating the fate that may await some students as they leave the hallowed halls of academia and sign up for Life 101. What value a new degree? Young, gifted... and drowning in debt Published: June 4 2005 03:00 | Last updated: June 4 2005 03:00 Over the next month, more than 600,000 British students will don caps and gowns, cross grand stages and accept their degree certificates. As they do, you might consider saying a little prayer for these innocent newcomers to the real world - for the future of the Class of 2005 is bleak. Today's graduates are unlikely to make much more money than their non-university educated counterparts. They are swimming in credit card and student loan debt and many will be unable to afford to buy a house or flat for many years. To top it off, they face the harsh reality of having to work much longer than their parent's generation in order to fund an average retirement income. In the US, comedian Bob Hope used to say at the many graduation ceremonies where he spoke: "It's a jungle out there. Don't go." He didn't know the half of it. It didn't always used to be this way, of course. Up until 1990, students left university virtually debt-free, often having taken advantage of social security benefits, housing benefit, income support and sometimes even unemployment benefit. Even ten years ago, university graduates were welcomed into the workforce with good salaries that enabled them to buy homes within just a few years of graduation as well as generous company-sponsored pension schemes. No longer. Today's graduates never had it so bad. Consider this: according to the Barclays annual graduate survey, 73 per cent of new graduates are leaving university indebted - with the average amount owed standing at £13,501. Adding insult to injury, a University of Swansea study out this week indicates that a degree certificate is no longer the ticket to a well-paid job. Graduates can now expect to earn an average of only £140,000 more over their lifetimes compared with those who don't go to university. The researchers, Nigel O'Leary and Peter Sloane, attribute this to the supply of graduates expanding faster than demand for their skills. "The value [of a degree] is changing," says Carl Gilleard, chief of the Association of Graduate Recruitment (ARG). "It's not a meal ticket anymore." New graduates should also shelve their dreams of buying a new home any time soon. The Nationwide House Price Index calculates the current average asking price of a property at £162,303 while the median starting salary for a new graduate, according to ARG, is £22,000 a year. This equates to an income multiple of nine. It's no wonder it takes first-time homebuyers an average of four years and nine months to save enough money for a deposit on a house, according to a survey by National Savings and Investments. New graduates' prospects for retirement look dreary as well. According to the National Association of Pension Funds, the majority of final salary and defined benefit schemes, where employers contribute on average 16.1 per cent of a worker's salary a year, are closed to new employees. In their absence, most employers are offering money purchase schemes where employer contributions tend to average 7.6 per cent of a worker's salary into a pension each year, according to the NAPF. In addition, many of these newly minted graduates are likely to retire much later than their predecessors. Both employers and the government are gradually increasing the retirement age. At present, the age eligibility for the state pension is 60 for women and 65 for men. But the NAPF says that by 2030, the state pension age will be at least 70 for both sexes. "Inevitably, it's going to have to go higher, the demographics don't add up otherwise," says Andy Fleming of the NAPF. The problems are only set to get worse in years to come as rising living costs and higher tuition fees continue to drive up student borrowing. From September 2006, British universities will be able to charge fees of up to £3,000 per year to new students. Most universities charge £1,000 a year now, but have signalled that they intend to raise their fees. "Student debt has never been this bad, and with top-up fees, it's only going to get worse," says Hannah Essex, of the National Union of Students. It's not pretty. So what's a new graduate to do? "In the past, young people had more time to enjoy their new-found income, but this is no longer the case," says Dax Harkins, senior savings strategist at National Savings and Investments. "Therefore, it's really important to get your finances in order from the very beginning of your working life." The first step, says Peter Bielagus, author of Getting Loaded: Get Ready, Get Set, Get Rich, a personal finance guide for students and young professionals, is to pay off any credit card debt. "This should be a top priority because at 18 per cent and upwards, it the most expensive form of debt anyone can have." Student loan debt, on the other hand, is a different matter altogether. Because these loans are pegged to the retail price index - which from September will be 3.2 per cent, according to the measure used by the Student Loans Company - they are a relatively cheap form of debt and it may make economic sense to maintain them. The next priority should be building up a pension fund - particularly if you work at a company that has some sort of a matching plan for retirement savings. "It's very easy for someone in their early 20s to let these early years tick by without giving a second thought to their retirement, but the cost of delaying is substantial because of the effect of compounding," says Jonathan Fry, a certified financial planner. Additional savings - for a house or other big-ticket items - come next on the list of priorities. The trick here, say experts, is for recent graduates to keep their expenses low during their first few years in the working world. "You might want to live at home for a year. True this means you're delaying your financial freedom for a while, but it also allows you to save money," says Bielagus. Bielagus says that graduates often find that saving isn't as hard as it seems. "You have to look at your routines and see where you can cut back in the least painful way - it might mean you stop drinking designer coffee, or you switch to a less expensive mobile phone plan, or you bring a brown bag lunch to work a few times a week," he says. "The thing is, you can't save sporadically. You must be vigilant." Rebecca Knight is the author of A Car, Some Cash and a Place to Crash: The only Post-College Survival Guide You'll Ever Need (Rodale, 2003)
