Student debt v. apprenticeship: which is better financially?

Will I be better off financially if I go to university or join a school leaver programme at 18?
If you’re wondering whether student debt is a bad thing, you need to compare it to the alternatives. Would you earn a lot more as a graduate, or is an apprenticeship the better option?

Your salary and career prospects

Is student debt worth it? It’s worth taking a moment to consider whether you would be better off financially if you go to university full time before starting work or if you join an employer at 18 or thereabouts on an apprenticeship or other school leaver programme; however, there isn't a one-size-fits-all answer. It will depend on the career you want to get into and the particular apprenticeship you are considering.

Will an apprenticeship get me as far as a graduate?

Some apprenticeships and other school leaver opportunities are designed to get participants to the same level in their careers as graduates who go to university full time before joining. This is often the case with employers who offer the chance to do a degree part-time while working. Examples include Barclays’ higher apprenticeship in leadership and management, and IT degree apprenticeships at Capgemini and CGI (known as graduate apprenticeships in Scotland).

However, not all programmes aimed at 18-year-old school leavers are designed to put you on a par with graduates, and often opportunities that don't require A levels/Highers won't be designed to do so. In these cases you might find that in the long term you earn less than those with a degree. For example, apprenticeships in law aren’t currently designed to allow you to qualify as a solicitor or barrister, which are the highest level roles with salaries to match.

Long-term career and salary progression

Make sure your research includes finding out about the qualifications you need to progress long-term. For example, some engineering companies offer the chance to take a bachelors degree part time while working; however, if you eventually want to become a chartered engineer (the highest level) it’s easiest if you have a masters degree, which often isn't included as part of a degree apprenticeship. Many engineering students who take a degree before starting work complete a four-year masters level course, giving them a simpler path to becoming chartered. (See our article on how to get into engineering if you want to know more.)

Would graduate earnings outweigh student debt?

If you go to university you are likely to leave with student debt, which will then accrue interest. However, the amount you repay each month depends on how much you earn, not how much you owe, and after a certain number of years your remaining debt will be written off – 30 years after you graduate in England and Wales, 35 years in Scotland and 25 years in Northern Ireland. The repayment threshold in England and Wales (the salary at which you have to start repaying) was raised to £25,000 in 2017; as a result of this the Institute for Fiscal Studies estimated that in England 83% of graduates will now not pay off their whole debt before it is written off. It’s likely (although not certain) that over time the repayment threshold will rise further to reflect the effects of inflation on salaries. (The repayment threshold in Scotland and Northern Ireland, and students in England and Wales who took out their loan before September 2012, is £18,330.)

There’s a helpful student loan calculator on the Money Saving Expert website for students in England and Wales, which can help you guesstimate how much you’d end up repaying based on your starting salary after university. For example, it estimates that a graduate who started university in 2017 on a three year degree, borrowed £48,750 and then started work on a salary of £21,000 (rising over time) would only have repaid £2,250 by the time their student debt was written off 30 years later – and that this equates to just £1,010 in today’s money. If the same student had a starting salary of £35,000, they would have repaid £79,750 by the time their debt was written off – £46,250 in today’s money.

Would you have been better or worse off financially if you hadn’t taken on this debt to get a degree? If you’d managed to get a place on an apprenticeship that got you to the same earning level as graduates in the same length of time – and that was as good for your career in the long term – then you’d have been better off without it. However, if you ended up earning a little less than a graduate of the same age as you then you might not have been. If you divide £2,250 over a typical working life of 45 years, then you’d need to earn £50 a year more as a graduate than a non-graduate to make your degree a good financial investment. If you divide £79,750 over 45 years, you’d need to earn £1,772 more per year in order to be better off (which you’re very likely to if you start at £35,000 and your salary keeps going up).

Broadly speaking, the more money you earn in your working life after university, the more of the cost of your education you’ll have to pay back. Graduates who earn relatively low salaries will only pay back a fraction of the cost, or even nothing at all. So in once sense you don’t need to worry whether taking on student debt is worth it – the amount you pay for your degree will end up being more or less in line with how much financial benefit you gain from it.

Graduate earnings depend on the career you choose

When thinking about future earnings, focus first on what career path you want to take rather than whether or not to go to university. Yes, there are some very well paid jobs for which you almost always need a degree, such as investment banking and being a City lawyer. However, if this isn’t what you want to do or you’re not realistically going to get the grades you need to get in, this is actually a bit irrelevant. If you go to university and then decide to try to break into a competitive industry with low entry-level pay (or long unpaid internships) then you’ll probably earn less than school friends who decided to take an apprenticeship in a better-paid industry, at least in the short term. This may well be the case if you want to work in fashion design, journalism, broadcasting, the theatre, the film industry, the charity sector or museums, among others.

Take salary statistics with a pinch of salt

It’s wise not to get too fixated on statistics relating to average salaries for all graduates or school leavers. Media reports about how much graduates earn often don’t give the full story about their figures (see our article on the top five myths about university, degrees and employment prospects). And salaries vary so much, particularly for graduates, that averages aren’t much help in predicting what you personally might earn.

Take a look instead at our 'How much will I earn?' articles, in the different career sectors, which will give you a feel for graduate and school leaver programme salaries in different industries.

When looking at figures showing how much school leavers and graduates earn at the same company remember that school leavers join at a younger age and will probably have had several pay rises by the time graduates of the same age join the company.

Not sure what career you want?

If you’re not sure yet what career you want, it’s difficult to judge whether an apprenticeship would be as beneficial as a degree for your career. However, if you’re still unsure about your career direction by the time you need to make applications for university or school leaver programmes (typically year 13 in England and Wales, unless you’re taking a gap year) then you may well decide to apply to university to keep your options open rather than trying to convince recruiters to hire you onto apprenticeships you’re not sure you want to do.

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