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A quarter of UK graduates can expect to be financially worse off after going to university, especially those who take creative or performing arts degrees, according to new estimates by the Institute for Fiscal Studies.

The research is based on the pay of students who graduated in the teeth of the global financial crisis in 2008. While the IFS projects that the majority will be £100,000 better off in lifetime pay thanks to their degree, about 25% might have done better without entering higher education once their likely pay, student loans and taxes are added up.

Controversy has risen around university funding and student loans in England after the government increased the amount that future students will repay.

Natan Ornadel, a research economist at the IFS and an author of the report, said that a degree remained a major financial boost for most graduates, compared with their potential pay with no degree but similar school results.

“But this does not mean that everyone who goes to university will be financially better off as a result: we estimate around a quarter of graduates – and 40% of men with low prior attainment – end up worse off than they otherwise would have been,” Ornadel said.

Much of the variation came from the careers that students choose after graduation, with those studying economics or medicine more likely to go on to highly paid jobs.

The research was funded by the Department for Education, which said the government had “outlined plans to draw up options for legislation” to cap student numbers for courses with poor outcomes. As previously reported by the Guardian, the government is also looking at minimum requirements for domestic students to access loans, such as a pass in English GCSE.

Nick Harrison, chief executive of the Sutton Trust, a charity promoting social mobility through education, said the IFS report and the government’s response raised uncomfortable questions for people from low-income families, for whom a degree was “the most reliable route” to upward mobility.

Harrison said: “The value of university goes well beyond earnings. University can be a life-changing experience, helping young people build social networks, life skills, and dreams and aspirations for the future. We’ve also found that graduates report higher wellbeing and happiness than non-graduates, regardless of background or career destination.

“At the same time, this report raises an uncomfortable question. If we are telling young people not to go to university, what exactly are we telling them to do instead?

“There is no shortage of criticism of so-called low-value degrees, but there is a chronic shortage of high-quality alternatives. Apprenticeships and technical pathways can offer great prospects for progression and success, but there are simply not enough of them available to be a viable alternative for lots of young people.”

Rachel Hewitt, chief executive of the MillionPlus group of universities including Sunderland and London Met, said: “This analysis is a clear reminder that financially, for the vast majority of students, going to university pays off.”

Vivienne Stern, chief executive of Universities UK, defended those taking creative arts degrees, who may not have been motivated by money: “We should recognise that these subjects also feed the creative industries which are a huge economic driver for the UK. And as a humanities graduate myself, my bet is that, in an age of AI, we’ll value the understanding of how human beings think and act more, not less, in the future.”

The IFS found that compared with its previous research in 2020, forecasts for the latest cohort have seen the “graduate premium” – the gap between graduate and non-graduate pay – shrink by 30%, thanks in part to higher student loan repayments.

It said that comparing graduates with those with the same school-level qualifications without degrees showed little change, while pay growth for other non-graduates had been better than expected.