College dropouts lost $3.8 billion in potential earnings last year

People who started college in 2002 but never finished lost $3.8 billion in potential earnings last year, according to a new report.

America's colleges do not do a good job on average of retaining students, getting them to graduate on time, or even to graduate at all. Only slightly more than half of all people who start college actually get a degree within six years. Most of the students who drop out do so within the first two years, and a disproportionate share of them come from low-income families.

What happens to the students who do not graduate is the subject of a new report from the American Institutes for Research. As a group, college freshmen who entered school in 2002 but dropped out in the following six years lost $3.8 billion in potential earnings last year, the report estimates.

Some students drop out because they are struggling to hold down a job to pay for their education and fall behind in their studies. Others become overwhelmed at the idea of taking on more debt to finish their degrees. But the huge share of college freshmen who enrolled in remedial math or reading courses in 2007 suggests that many students are woefully under-prepared for college-level work, and may drop out because they can't cut it.

The nation's low college completion rate is bad news for dropouts, who bear the burden of lower wages and paying off student loans with them. But it's also bad news for taxpayers. Every year, states spend $1.3 billion in the form of grants and other subsidies to support students who do not return to college after their first year.

Meanwhile, states lost $164 million in taxes on dropouts' lower earnings while the federal government lost $566 million in potential revenue, according to the report's analysis. The researchers calculated lost wages by using the median salaries in each state for college graduates aged 21 to 24 compared to the median salaries for people in the same age group who only attended some college. That yearly difference ranged from $8,000 in Kansas to $11,000 in California.

Of course, the study is assuming that even if the nation drastically boosted its college graduate population, employers would still pay them significantly more than people with less education. The study also assumes that the skyrocketing price of college will not outpace that salary premium. Other studies have suggested this is true, though how much or little college graduates earn is tied to what subject they majored in.

College completion rates vary widely by state, and are significantly higher at public and private institutions with selective admissions. This interactive map shows the percentage of college dropouts by state.