Face the financial facts of education

Lesson 1: Pick the right field of study

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Simon Hayter

Simon Hayter

It’s September once again—the start of another university or college year. For students heading to campus for the first time, it seems a moment of endless possibilities. And yet according to a recent study, a student’s future prospects may be largely decided the moment they pick their major.

First the good news. Canada has the highest level of post-secondary education among all 34 countries in the OECD. And earning a university degree will boost your earnings by an average of 30 per cent per year, as compared to a high school diploma.

However, research this week from CIBC economists Benjamin Tal and Emanuella Enenajor suggests the financial advantage accruing to university grads has been shrinking of late. The cost of an undergraduate degree has risen 20 per cent in the past five years alone. And the five percentage point unemployment rate differential that university graduates once enjoyed over high school grads has shrunk to a mere 1.7.

At the same time, the relative advantages to college appear to be growing—tuition fees are much lower, and the unemployment gap between university and community college grads has almost entirely disappeared; it’s now just 0.7 percentage points.

Perhaps the biggest concern, however, is the fact that among all OECD countries, Canada has the highest proportion of university (and college) graduates earning less than half the median income. According to the CIBC report, this is largely because of massive earning differentials between various degree programs based on job-market demand. While the average degree holder may see a 30 per cent annualized return from their investment in schooling, results vary. A lot.

Engineering is the most financially rewarding choice a student can make, with a 117 per cent annualized earnings premium over a basic high school education. The next best fields of study, by payoff, are math, computer science and the physical sciences, all with an 86 per cent premium. After that comes a commerce degree, with a 74 per cent return on investment. Most arts or humanities programs, however, provide a much smaller boost. At the bottom of the rankings, fine arts majors earn, on average, 12 per cent less per year than high school grads.

These figures paint a somewhat discouraging picture of life after graduation for many eager new university students: despite your best efforts, future financial success seems largely predetermined by the course of study you select in first year.

It also seems to validate the Harper government’s fixation with a national skills gap. Recall that the 2013 federal budget claimed the “number one concern” for Canada’s future economic success to be a mismatch between the skills workers have and the skills employers need, and proposed a variety of fixes, including the much-criticized $300-million-a-year Canada Job Grant program and various apprenticeship benefits. The earnings gap between engineering and fine arts students speaks to a similar discrepancy.

And yet it’s a big stretch to go from spotting such a gap to accepting the need for government intervention. As much as it may make sense from a strict economic efficiency perspective to wheedle or cajole fine arts students into programs with greater market demand, like science or commerce, such a system is neither practical nor desirable.

No government can ever hope to know what is best for every student. Earnings potential is just one of many calculations that go into a student’s program decision. Ability, passion and personal satisfaction are equally significant factors. And no one would wish a world where the arts disappear simply because artists earn less than engineers—there’s more to life than wages.

If Canada’s higher education system needs fine-tuning to ensure graduates don’t face any unpleasant surprises when they exit university or college, the answer lies in improving the flow of information between the job market and new students. The CIBC report thus plays a part by laying out the cold, hard financial facts on earnings.

Maclean’s is also getting involved. Our annual University Rankings issue and Canadian Universities Guidebook have established our reputation as the leader in Canadian post-secondary coverage. This fall, we will be taking a close look at life beyond campus as well, with our first-ever Guide to Jobs in Canada special newsstand edition. Included will be detailed information on what jobs will soon be in high demand, what education they require, how much they pay and where they’re located.

Deciding what to study in university or college is something students must do for themselves based on their own unique hopes, dreams and life goals. But the better the information they have about life after school, the better those choices will be.