College Dropouts “Cost” Money

There’s a significant economic impact when students don’t finish college, according to a new report. The American Institutes for Research reveals that college dropouts cost “the nation..approximately $3.8 billion in lost income; $566 million in lost federal income taxes; and $164 million in lost state income taxes.”

These are figures that I worry people, particularly politicians and journalists, are going to start throwing around with wild abandon. Just because something is a problem doesn’t mean it’s necessary to reduce that number to a dollar figure. In this case it’s particularly inappropriate. Because in truth dropping out of college is bad, but these numbers are almost meaningless.

The report explains the calculations like this:

The income losses incurred by students not earning a college degree are estimated as the difference between the median earnings for young adults with some college but no degree, and the median earnings for young adults with a bachelor’s degree. These median earnings data by education are available at the national level in 2009.

The current report documents the size of potential tax revenues lost to federal and state governments associated with the large number of students who do not graduate from college. Because college graduates earn so much more than students who start college but do not graduate, federal and state governments are losing out on the income tax payments that would be collected on the higher earnings of college graduates.

This is interesting, if not particularly surprising. College graduates earn more money than those who merely start college. The AIR study attempts to break this down into a difference between what America would earn if everyone who started college completed it and what it actually earns.

This is all very sophisticated, but it’s not really a “cost.” Failure to complete a degree doesn’t actually result in any additional cost to taxpayers or even to the dropouts; they merely earn less money. That’s important to acknowledge but that’s like saying my not going to medical school or something was a “cost.” It’s not a cost. Student loans are a cost; this is a theoretically higher income I won’t be earning.

In truth, the AIR study is really more like an extended metaphor about the problem of low college completion.

But the cost AIR has put on dropouts is misleading. If everyone who started college actually completed their degrees, there would be a lot more students in college. A lot more, in fact, than existing colleges, which assume significant attrition rates, are prepared to educate. About 80 percent of college students are enrolled public institutions (community colleges and state colleges and universities). Since most students attend public colleges, that increase would cost states money, real money. Such a dramatic increase would actually require schools to build new building to house and teach them. That would also coast real money. Furthermore, we know that students mostly drop out of college for financial reasons; a good way to keep them in would be to give them more grants, which would also cost real money.

Now all of these payments might be quite beneficial, but let’s not pretend it its free. If it’s time to put a price on college completion, it’s got to be a real price. If colleges want to educate more people and educate the ones they have more completely, that’s sure it might eventually result in increasing earnings and buying power, tax base, etc. but it would also be very expansive to institute.

There’s nothing wrong with placing a dollar value on social problems, but there’s something irresponsible about doing it in such a sloppy manner. If we’re going to talk about dollar figures here, we’ve got to look at real dollar figures. College dropouts might “cost” money, but preventing students from dropping out would actually cost money.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer