College dropout rate puts financial strain on governments

First-year college completion is crucial to earning a diploma.
First-year college completion is crucial to earning a diploma.

State and federal governments spend billions of dollars in college financial aid to support students at four-year colleges and universities who leave school before their sophomore year, according to a new report from the American Institutes for Research (AIR) that provides yet another financial incentive for policy makers to focus on boosting college graduation rates.

“When students enroll in a college or university and drop out before the second year, they have invested time and money only to see their hopes and dreams of a college degree dashed,” said Mark Schneider, an AIR vice president and former commissioner of the National Center for Education Statistics. “These costs can be heartbreaking for students and families, but the financial costs to states are enormous.”

“Finishing the First Lap: The Cost of First-Year Student Attrition in America’s Four-Year Colleges and Universities” examines 2004-09 data from the federal Integrated Postsecondary Education Data System (IPEDS) and found that the 30 percent of first-year college students who failed to return to campus for a second year accounted for $6.2 billion in state appropriations for colleges and universities during that period and more than $1.4 billion in student grants from the states.

Additionally, the federal government provided $1.5 billion in grants to these students. The study did not examine community colleges, where the first-year college dropout rate is even higher.

“The [college] completion agenda is becoming one of our nation’s highest priorities when it comes to higher education,” Schneider said. “We’ve all begun to realize that just getting students into college is not enough, and that we have to get them through it.”

First-year student retention is roughly 70 percent, Schneider said, but “first-year retention is an absolutely critical step in terms of getting students to completion.”

The findings come at a time when states are struggling to find money for all kinds of programs and services, and when President Obama and the country’s leaders are pursuing a “college completion agenda” and are seeking to have the highest percentage of college graduates in the world by 2020. “The nation will have a difficult time reaching the administration’s policy goals if we continue to spend so much money on students who don’t even finish the first lap, let alone fail to cross the finish line,” the report notes.

Most students attend public colleges or universities, which are subsidized by taxpayers through state appropriations and grants to students. Nationwide, these subsidies average nearly $10,000 per student, per year.

With a high college dropout rate comes high losses in state funds. Thirteen states posted more than $200 million of state funds lost to students dropping out before the second year of college. These states include California ($467 million), Texas ($441 million), New York ($403 million), and Illinois ($290 million). The average state spent $120.5 million in state subsidies to first-year dropouts over the five-year period.

“As state colleges and universities struggle in a difficult budget environment, what is most disturbing is how much direct state support has been lost to college dropouts,” Schneider said.

The study did not examine the costs to taxpayers when students drop out sometime after their sophomore year. Nationally, only about 60 percent of students graduate from four-year colleges and universities within six years.

Schneider noted that IPEDS data only accounts for 48 percent of all undergraduate students enrolled in four-year public institutions and 32 percent of those enrolled in two-year public institutions. The IPEDS college graduation rate does not account for part-time students, who represent 37 percent of all college students and 61 percent of public two-year college students, nor does it account for transfer students. Thirty-seven percent of students who earned a bachelor’s degree attended more than one institution.

One survey limit, he said, is the difficulty presented by out-of-date data systems that are limited in what they can track—such as the number of students who leave one institution after the first year but do go on to graduate from another institution.

Over the same five-year period, the cost of state appropriations just for these first-year dropouts increased by 15 percent. Expenditures on student aid grants increased by 30 percent from the states and 40 percent from the federal government for students who never returned as sophomores.AIR has launched, an interactive web site that lets users evaluate the performance of college and state systems on a range of measures, including student progression and college graduation rates, graduates’ ability to secure gainful employment, and the amount of financial aid going to students who do not graduate. The site already contains college graduation rates and expenditure data for all 50 states, six metropolitan areas, and more than 1,500 institutions.

Facts such as these are part of what prompted the National Governors Association to launch its Complete to Compete initiative.

“As states face the worst economic crisis in modern history, we must collaborate to develop common performance measurements and take concrete steps to increase completion rates within our available resources,” West Virginia Gov. Joe Manchin, NGA chair, said of the initiative. “From transforming first-year coursework to implementing performance funding, it is up to states and institutions to create policies that can improve degree attainment and more efficiently use the dollars invested by states and students.”

An NGA task force compiled a list of common college completion metrics that would help states identify higher-education measures that they can collect and publicly report.

Suggested metrics include degrees and certificates awarded, transfer rates, success in first-year college courses, and credit accumulation.

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Laura Ascione