Investing in Your Future? How the Cost of University Shapes Labour Market Outcomes
Abstract: Increases in the cost of higher education raise concerns about the returns to human capital and the extent to which financial barriers restrict access, yet little is known about their effects in settings without credit constraints. This study leverages a natural experiment in which the UK government substantially raised a cap on tuition fees, to estimate the causal impact on educational attainment and labour market outcomes using a difference-in-discontinuities de- sign. I find that the fee increase reduced university enrolment, particularly in fields with lower expected returns, while students from low-income backgrounds were not disproportionately affected, likely due to the UK’s income-contingent loan system which mitigates credit con- straints. Overall, graduates affected by the reform were more likely to enter higher-paying industries and transition into employment more quickly, while low-income graduates expe- rienced a modest increase in earnings. These findings offer new insights into how higher university costs influence human capital investment and post-graduation outcomes.