“ Does it pay to attend a prestigious university ? ” Arnaud Chevalier Gavan Conlon March 2003

The Centre for the Economics of Education is an independent research centre funded by the Department of Education and Employment. The view expressed in this work are those of the authors and do not necessarily reflect the views of the Department of Education and Employment. All errors and omissions remain the authors. Executive Summary The United Kingdom higher education system has to date been characterised by all undergraduate students paying a unique price irrespective of the institution attended. Recently, a group of research-orientated universities has been arguing that the higher average earnings achieved by their graduates stems from the quality of the teaching provided. As the provision of high quality teaching is costly, these institutions have lobbied for the right to charge higher fees. This claim that prestigious institutions provide higher financial returns to their graduates has not been clearly illustrated to date. As more prestigious university attract students of higher academic ability and with different backgrounds than students registering at modern institutions, a simple comparison of the earnings can be misleading as it does not account for pre-university personal and academic characteristics. Using three cohorts of graduates in 1985, 1990 and 1995, we control for the selection of individuals into different types of university using a Propensity Score Matching method. We show that there are substantial variations in the quality of the teaching provided as reflected by differences in the wages achieved by graduates attending different types of higher education institution. Specifically, even after accounting for personal characteristics graduating from a Russell Group institution adds between 0 and 6% to an male graduate's earnings compared to graduating from a Modern university and 2.5% for women in the younger cohorts Teaching Quality as represented by earnings returns within different types of institution also differs widely. The effects of teaching quality on wage growth are unclear and we are unable to conclude whether quality effects result in temporary or permanent increases in earnings. There is also some evidence that with the expansion of higher education, the heterogeneity between institution types has increased while heterogeneity within types has decreased. We use these estimates of the returns to the type of institution attended to predict prices in the higher education market if institutions were left with the freedom to set their tuition fees. Under various scenarios, we estimate a fee differential between prestigious and less prestigious universities ranging from £2,950 to£7,250. This range …