Recent studies on the value of a college education have focused almost primarily on its benefits for students. But new research suggests that finishing college can provide a much-needed boost to states as well. A report released today from the American Institutes for Research finds that students who do not complete college could cost states billions in lost income taxes, which could prove crucial as cash-strapped states are facing increasingly steep cutbacks.
AIR’s report, The High Cost of Low Graduation Rates: Taxpayers Lose Millions, points out that only slightly more than half of students who attend four-year universities graduate within six years. This could amount to an irrevocable loss in future earnings, say the authors.
The report found that one cohort of full-time students who started college in 2002 but didn’t graduate six years later would lose an estimated $3.8 billion in potential earnings.
“This is a permanent loss,” said Mark Schneider, a co-author of the report, in a conference call with reporters. “They don’t make this up. They lose this every year.”
Over a lifetime, the report says, the cumulative losses for students who do not complete college could amount to $158 billion.
For states, says Schneider, a far more salient statistic should be the report’s findings about estimated loss in revenue.
States spend an estimated $1 billion each year in appropriations for students who eventually drop out, Schneider said.
Using the same 2002 cohort of students who failed to finish college, the report found that states lost an estimated $168 million in taxes. For the federal government, the losses amounted to $556 million. Over a lifetime, state losses could amount to $7 billion.
Schneider said that the report should be a “wake-up call” for states, which typically have a pivotal role in reforming higher education. He said that state governments should monitor and evaluate campuses more closely, possibly offering incentives for schools to increase graduation rates.
“Schools have the leverage to change higher education,” he said. “Governors, educators, legislators—they are the ones who drive higher education reform.”
Schneider said that by focusing on receiving “performance funding,” or state funds tied to graduation and retention rates, many schools ignore the broad-based problems behind lack of college completion.
“We don’t have a good playbook in terms of what drives up completion rates because it’s been ignored for so long,” Schneider said. “All campuses cared about were filling seats.”
Scott Bass, provost of American University and Professor Public Administration and Policy at the college’s School for Public Affairs, says that the public debate about the value of higher education too often ignores its wide-ranging benefits.
“There was a time historically when higher education was viewed as a public good for the local citizenry and that it would improve the economy of that region or state,” he says. “It has shifted to a private good and something that you purchase on your own.”
He says that shifting the focus on education as a public good could prove crucial as the United States becomes more diverse and faces the challenges of a changing global economy.
“The extent to which we invest in an educated citizenry will affect quality of life and quality of politics policy and contributions to the arts, humanities, literacy and science,” he says.
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