Report: College Dropouts Rob Feds of Billions

Study puts a price on lost taxes and income from dropouts.

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Despite efforts by President Obama to boost college graduation rates, more than 40 percent of freshmen don't graduate and that's costing Uncle Sam and state governments billions in lost tax income—and even more in lost income to the dropouts. 

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A new study provided to Whispers from the American Institutes for Research finds that for just one year—2002—some 40 percent didn't graduate, costing the federal income $566 million in potential taxes, state governments another $164 million and the students themselves $3.8 billion in lost income over their life.

Just multiply that by the average dropout rate of many more college classes and the cost of not graduating skyrockets. Those losses, said the report, "represent only the tip of a very big iceberg."

Worse, said AIR, taxpayers are out all the subsidies they pay to help those students get through school.

"Students who start college and don't graduate incur large personal expenses. They have paid tuition, they have taken out loans, they have changed their lives and they have failed in one of the biggest goals they have ever set for themselves," said Mark Schneider, co-author of the explosive report, "The High Cost of Low Graduation Rates: Taxpayers Lose Millions." He added, "Taxpayers have paid billions of dollars in subsidies to support these students as they pursue degrees they will never earn, and as a nation, we incur billions in lost earnings and lost income taxes each year."

AIR looked at the 2002 crop of some 493,000 freshmen to determine the costs of not graduating. The biggest cost was to the students themselves. According to the Census Bureau, college grads can earn about 40 percent more than those who don't complete a degree and about two-thirds more than those with just a high school diploma. [See a collection of this month's best political cartoons.]

Low graduation rates also squeeze the taxpayer, said the report, because state and federal spending on them to support colleges and through grants and scholarships are wasted. A 2012 AIR report, said states spend more than $1.3 billion per year on students who drop out in their first year while the Feds drop another $300 million per year.

And it's especially hard on states that are budgeting for higher incomes from college graduates. The biggest losers, said AIR, are California, New York, Texas, Pennsylvania and Illinois.

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