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New Study Quantifies Costs of College Dropouts

If policymakers weren't wringing their hands enough about low college-graduation rates, now a new study puts a dollar figure on the lost income from young men and women who never complete their degrees.

The American Institutes for Research, a behavioral and social-science research organization in Washington, analyzed nearly 1.1 million students that started college in 2002 and found nearly 500,000 dropped out within six years. From that, AIR estimated the difference in their potential earning power as college graduates vs. workers without a degree.

(U.S. Census figures show young adults ages 25-34 earn about 40 percent more with a college degree than someone with only a high school diploma.)

AIR's findings: $4.5 billion was lost in earnings and federal and state taxes from that one cohort of college dropouts. For 2010, the group missed out on an additional $3.8 billion in income, and the government lost $566 million at the federal level on taxes that money could have generated and another $164 million in state income taxes.

Since the analysis only looks at one graduation class, it represents the tip of the iceberg when it comes to the consequence of low-graduation rates, the authors write in the report "The High Cost of Low Graduation Rates: Taxpayers Lose Millions" by Mark Schneider and Lu Yin.

Students who fail to graduate often have great personal expenses, including tuition, loans, and time invested in hopes of getting a degree. The government misses out not only on taxes from lost income, but also doesn't get the benefits of its subsidies for loans and higher education institutions, the report notes.

The study breaks down the potential lost revenue by state and by institution. States with the largest number of dropouts from college and universities—and therefore the highest income losses from this class include: California ($386 million in income lost); New York ($360 million); Texas ($341 million); Pennsylvania ($185 million) and Illinois ($173 million). Those states, among the most populous, also missed out on another $30 million to $78 million in state and federal income tax revenue.

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