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Editor's Note

Counting Chickens Before They Hatch

University Business, Sept 2011

As another school Semester begins, administrators will be confronted with a segment of their student population that does not go on to graduate. Attrition is nothing new, of course. It happens every year, as students begin their college careers in earnest, but find, for one reason or another, that they can't continue. Perhaps the student has financial difficulties or is simply not prepared academically or emotionally for the rigors of college. Whatever the cause, it is something that college and university leaders have learned to expect, and they build it into their enrollment and revenue projections.

In recent years, however, the numbers have grown. More students are enrolling in college but, at the same time, more are not graduating. A new report by American Institutes for Research shows the impact that these non-graduating students have had on local and regional economies. "The High Cost of Low Graduation Rates: Taxpayers Lose Millions" is an eye-opening report that comes at a time when states are grappling with huge budget cuts and declining revenue.

More students are enrolling in college but, at the same time, more are not graduating.

The AIR study looked at more than 1.1 million full-time students who entered college in 2002 seeking bachelor's degrees. Of that group, an astounding 500,000 did not graduate within six years. Coauthors Mark Schneider and Lu (Michelle) Yin estimate that those numbers result in a combined $4.5 billion in lost income and lost federal and state income taxes.

The AIR analysis found that the 493,000 students who started college in 2002 but did not earn a degree lost a total of approximately $3.8 billion in income in 2010 alone. The lost income would have generated $566 million in federal income tax revenue, while states would have collected more than $164 million in state income taxes.

"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," Schneider said in a conference call in August. "While this report focuses on only one cohort of students, losses of this magnitude are incurred annually by each and every graduating class."

Numerous studies have shown that people with college education have greater earning potential—84 percent more over a lifetime, according to Georgetown University research—than those with only a high school diploma. Consequently, there are greater efforts to get more students into college, including President Obama's objective of increasing the number of Americans with college degrees from 40 percent to 60 percent by 2020. It's a noble goal, but with shrinking aid and a soft job market, this may potentially result in even more dropouts—far beyond the forecast in a college's enrollment report.

"Students who start college and don't graduate incur large personal expenses. 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," Schneider said. "Taxpayers have paid billions of dollars in subsidies to support these students as they pursue degrees they will never earn, and as a nation, we incur billions in lost earnings and lost income taxes each year."

Why they drop out is a discussion for another time. But education and government leaders must come to grips with the fact that the current model is unsustainable. What's your opinion?

Write to Tim Goral at