THE HIGH PRICE OF LOW GRADUATION RATES

Poor College Completion Rate Costs the U.S. Billions

The U.S. and state governments lose out on billions in tax revenue because four in 10 college students are unlikely to earn their degree within six years, according to a new report by the American Institute for Research (AIR).

The AIR study, The High Cost of Low Graduation Rates: How Much Does Dropping Out of College Really Cost?, finds that of the 1.1 million full-time students who entered a four-year college in 2002 seeking bachelor degrees, almost 500,000 did not graduate within six years. AIR estimates that in 2010 these students cost the U.S. $3.8 billion in lost income that would have resulted in $566 million more in federal income taxes and $164 million more in lost state income taxes. In all, the 40 percent of freshmen in 2002 who failed to earn their degree costs the country $4.5 billion in 2010, according to the report.

"These findings represent just one year and one graduating class. Therefore, the overall costs of low graduation rates are much higher since these losses accumulate year after year," explained Mark Schneider, a vice president at AIR who co-authored the report with AIR researcher Lu (Michelle) Yin.

In addition to increasing revenues, the Obama administration could make significant strides toward its goal to have the highest concentration of college and university degrees in the world by increasing college completion rates for students who access higher education.

The inability to complete their program also has a negative impact on the individual students.

"Students who start college and don't graduate incur large personal expenses," Schneider said. "They have paid tuition, they have taken out loans, they have changed their lives and they have failed in one of the biggest goals they have ever set for themselves."

In the state-by-state analysis, AIR calculated that 14 states saw income losses from this single group of dropouts exceeding $100 million annually. Those include California, with $386 million in lost income, and New York with close to $360 million, to Louisiana, Massachusetts, North Carolina and New Jersey, all losing between $100 and $107 million in earnings. Losses in federal income tax saw were also substantial.

The report also highlights some of the financial implications for students who complete college compared to those who do not. Young adults between the ages of 25 and 34 with a college degree, working year round, earn around 40 percent more than someone with some college who has not completed a degree and around two-thirds more than someone with just a high school degree, according to the U.S. Bureau of the Census. A college graduate can earn about a half million dollars more over a lifetime than a person without a degree.

"Given these higher earnings, many governors are looking at a more educated population as a way of dealing with the growing fiscal crisis they face," said Schneider. "Most states have state income taxes and they benefit directly from the higher incomes earned by college graduates."

"Low college graduation rates are costly for students, for their families, and for taxpayers in each state and the nation as a whole," the report concludes.


Publication Date: 8/23/2011