The Cost Of College Dropouts

The American Institutes for Research (AIR) published a report in August this year taking a look at the economic impact of college dropouts.  The AIR analysis estimated that the cost to the nation from students who started college in fall of 2002, but failed to graduate six years later amounted to $4.5 billion per year in lost earnings and taxes to state and federal governments.

The breakdown is as follows:

• $3.8 billion in lost income;
• $566 million in lost federal income taxes; and
• $164 million in lost state income taxes.

The infographic below is a cliff notes version of the aforementioned AIR report, plus data from some other sources such as CollegeMeasures.org.

A couple of months ago, we wrote about the United States could soon face a shortage of 20 million college graduates by 2025 putting the country’s future at risk due to a low college graduation rate.  However, the reality is while quite a few sectors like technology and energy are experiencing an increasing shortage of skilled professionals, new college graduates in the country are having a hard time finding a job.  In fact, some of the protesters in the now two-week-long Occupy Wall Street movement are such youngsters.

This discouraging jobs picture is a reflection of a fundamental and structural issue in the American labour market execrated by the Great Recession, which has prompted some to seriously question whether it is even worthwhile to invest money and time in a college education.  But based on a recent Census Bureau study which concluded that the estimated impact on annual earnings between a person with a professional degree and one without a high school diploma was about $72,000 a year, we’d say a college degree definitely pays off in the long run in terms of the quality of life, and a sense of self realisation, although it may seem like the worst jobs market time for classes 2008 to 2011.  

However, the more rooted issue is that the high college dropout rate has been a persistent trend in the U.S. for decades.  The AIR study was conducted based on a sample group in 2002, six years prior to the financial crisis and recession, which suggests the dropout rate, and collective costs could be much higher by now.

Russia and South Korea now outrank the U.S. in terms of college graduation rate.  President Obama has vowed that America will retake the lead in producing college graduates by 2020, and there are initiatives aiming to increase college graduation rate.  Nevertheless, that timeline could be pushed back significantly amid the high national debt and budget / deficit cuts.

One interesting statistics contained in the infographic is that the college dropout rate varies significantly among different ethnic groups, and Asian is the group with the lowest dropout rate at 3.4%.  One has to wonder if the Asian “Tiger mum” (Trust us, it is for real.), which is essentially a cultural difference between the East and the West, has much to do with that?

College Dropout Rates

Photo: Accredited Online Colleges

Further ReadingCollege Graduates: Too Many In China, Not Enough In America?Read more posts on EconMatters »

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