High cost of low graduation rates

22 AUG 2011 REPORT

The High Cost of Low Graduation Rates

How Much Does Dropping Out of College Really Cost?

Mark S. Schneider and Lu Michelle Yin

Executive Summary

President Obama has set an ambitious goal for the nation: By the year 2020, the United States will have the

highest proportion of adults with college degrees in the world. The Obama administration sees the

successful completion of postsecondary education as essential to American competitiveness. Governors

likewise see the economic future of their states as dependent on the development of a highly educated

workforce that can compete with other states and other nations.

There also are more immediate reasons for elected officials to want more college graduates. College

graduates earn, on average, far more than college dropouts, and these higher earnings translate directly into

higher income tax payments that can help solve growing fiscal problems at the federal and state levels. But

our colleges and universities are now graduating only slightly more than half the students who walk through

their doors. Much of the cost of dropping out is borne by individual students, who may have accumulated

large debts in their unsuccessful pursuit of a degree and who forfeit the higher earnings that accrue with a

bachelor’s degree. This report shows the high costs of low college graduation rates in terms of lost income

and in lower tax receipts for federal and state governments.

For students who started in fall 2002 as full-time students seeking a bachelor’s degree but failed to graduate

six years later, the cost to the nation was approximately

$3.8 billion in lost income;

$566 million in lost federal income taxes; and

$164 million in lost state income taxes.

These estimated losses are for one year and for one class of students. Because the losses for these

students accumulate year after year, these estimates understate the overall costs of low college graduation

rates. Further, this report focuses on only one cohort of students; however, losses of this magnitude are

incurred by each and every college class. In short, there are high costs for low graduation rates borne by

individual students, by their families, and by taxpayers in each state and the nation as a whole. Detailed

state data and tools to compare income and tax losses across states are available at College Measures