Politicians should stop using a “carrot of higher graduate earnings” to justify raising student fees or freezing repayment thresholds, say campaigners.
Those who do “should be charged with gross mis-selling”, says Angus Hanton, co-founder of the Intergenerational Foundation (IF) lobby group.
Having to pay back student debts will wipe out any graduate premium for most professions, claims the IF in a report.
The government says higher education boosts employability and earnings.
The report focuses on tuition fee rises in England – currently capped at £9,000 a year – pointing out how successive governments have used the graduate “pay premium” to justify them.
The premium is the amount of extra money it is estimated a degree can help graduates to earn over the course of a lifetime.
The report says that in 2002, ministers put it at £400,000, but recent estimates have been more modest at about £100,000.
There are wide variations between the sexes and between subjects and institutions, it adds.
It argues that, while for somebody who gets an Oxbridge first, the premium figure of £400,000 “may still hold true”, it is much lower for non-Oxbridge graduates.
“The increasing number of graduates… is further undermining the value of a degree,” it adds, with some previously low-to-median paid posts now requiring degrees.
“Our research proves that the current £100,000 graduate earnings premium so often touted equates to an ‘annual bonus’ of just £2,222 over 45 years of work and is wiped out once National Insurance and income tax are taken into account.
“Furthermore, the premium is simply not enough to cover the interest accruing on the average loan.
“The current system is fuelling a self-perpetuating debt-generating machine which short-changes young people,” argues Mr Hanton.
The authors say a graduate who borrowed the maximum for tuition fees and maintenance would, with interest, owe £53,000 after three years.
If unpaid for the full 30 years before being written off and if bank rates follow the pattern of the previous 30 years, the debt would reach £282,420, they calculate.
In addition, unlike most ordinary loan agreements, the terms and conditions of student loans can be changed “at any moment without debate and without notice”, they add.
They point out that the government has already broken a promise that the income threshold for repayments would increase with average earnings from April 2017.
Instead, it will be frozen at £21,000 for five years, then Chancellor George Osborne announced in November 2015.
The report questions whether lower paid graduates will continue to consider a degree worthwhile.
“Paying off these huge, unquantifiable and relatively unregulated debts will wipe out any graduate premium in all but the highest-paid professions,” say the authors.
And graduates could find themselves effectively “indentured to an as-yet-unknown private banking entity” if the government were to sell their student debts to the private sector, they add.
Martin Lewis, from the MoneySavingExpert website, who has hired lawyers to test the legality of the threshold change, called the research “interesting” but said he was “somewhat worried it will be interpreted that someone who earns more won’t take home more”.
“Most students won’t pay off the debt in full within the 30 years. So you have to consider this more as an extra income tax, rather than as a loan.
“If you earn more, you effectively pay 9% more in tax on earnings over £21,000 – but you still earn more,” said Mr Lewis.
He said the report’s emphasis on debt risked deterring people from non-traditional backgrounds from university “for the wrong reasons”.
A government spokesman said: “All of our reports, based on independent data, have shown that a degree continues to give graduates a big earnings boost.”
A spokesman said this boost amounted to an average of about £170,000 for men and £250,000 for women over a working life, after student loans, tax and national insurance had been taken into account.
The government is reforming the system and introducing a “teaching excellence framework” to ensure universities provide “the skills students and employers need”, he added.
Scotland does not charge fees for Scottish undergraduates aged under 25. Fees in Wales are £9,000. Northern Irish students studying in Northern Ireland pay £3,925 a year.