This paper examines the determinants of degree outcomes in a sample of UK universities from 2004 to 2012. We use stochastic frontier methods to account for differences in efficiency across universities and over time. The quality of the student intake and the university's research performance are the main determinants of degree outcomes. There is no evidence of grade inflation at the boundary between upper and lower second‐class honours. Decomposing the determinants of degree outcomes, we find that good entry grades yield a higher return in traditional universities than in new universities. Although high‐quality universities award more good degrees, we find little evidence that universities of different quality differ in their propensity to inflate grades over time.