This is a multi faceted issue! The pecieved decline of model engineering, changes to lifestyles due to the economy and technology and changes to working practices are education are all factors.
Considering university education as that was the original question; The number of universities and consequently the number of students following degrees has exploded exponentially over the last 40 years. 40 years ago there were few universities and when I left school out of my whole year I think there was only one student who went on to university. Fast forward to the present and many colleges and polytechnics have evolved into universities and there is an expectation in schools that students will progress to university! 40 years ago graduates were the academic elite and degrees were prized, now it is the normal expectation that students will progress from A levels to a degree. The increased accessibility to university education has not necessarily lead to a higher number of highly educated graduates! Further education has become big business! Traditionally graduates were for white collar jobs, they were not expected to do be intimately involved with manual labour.
Employment; Heavy Engineering has declined in the UK, economic pressures have dictated that manufacturing has become automated (machines being cheaper to run than people) so there is less demand for people with manual skills, manual machining (which has been the main stay of model engineering from its inception) is in decline and now has become a premium in jobbing and repair shops. Most employers from what I see these days even in apprenticeships concentrate on giving apprentices the relevant skills applicable to their sphere of business and not necessarily a complete rounded bottom up training program (again dictated by economics). 40 years ago employers took on far more apprentices than they required and there was no gaurantee of a job at the end, this gave the employer the ability to cherry pick from the bunch.
Perceived decline in model engineering; From my own society over the last 40 years the demographic has changed. When I joined my local club at 16 the average age of members was around 50, today it is approaching 65. We are still getting new members but they are people approaching retirement age. If you looked at occupations little has changed, years ago members actually employed in engineering or with formal training in engineering only accounted for around 20% of the total, the remainder were bank managers, dentists, media people etc. Today new members are less likely to be or have been professionally involved in engineering but they are starting their interest later. The few members we gain in the 40 to 65 age group are now most likely to buy a ready built, ready to run locomotive (steam and electric) or traction engine. Our membership numbers peaked in the 80's at around 60 members and has remained fairly steady around that number since. So the evidence says overall the interest has not declined but has changed, new members are much less likely to have or aspire too a reasonably equipped workshop.
So to return to the original point re university students and practical experience; traditional universities never churned out fitter / turners they churned out managers, designers and concept people. If employers now are finding the products of universities do not have the skills they require then industry needs to address this with universities and examination bodies to tailor the courses to meet their needs. It seems to me universities these days are run by academics and accountants with the objectives of generating as much revenue as possible rather than meeting a genuine need of employers. I also think from what I read and see that universities have reached or are close to reaching their peak and due to the rising costs on students to gain a university education and levels of debt students leave with there will be a decline in student numbers and potentially a decline in the number of universities. My conclusion is students in terms of what they are taught and employers in terms of what they would like their new graduate employees to know are not being best served by universities that have the objective of clawing in cash and tailoring courses and facilities to what they think is best, rather than what is really required. Interesting times!
Paul.