School Bailout: Student Dropouts Are the Next Big Failing Financial Assets

The financial numbers around student dropouts are stark, Bob Wise and Marguerite Kondracke write.

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As the Treasury debates the moral hazard of rescuing banks and other distressed businesses, which are arguably responsible for their own demise, there is one steadily growing group of nonperforming assets whose rescue poses no ethics debate and whose future is inextricably tied to the success of our nation. These are our children, and more than 1 million of them are dropping out of high school each year.

It may seem harsh to couch children in financial terms. But they are another complex financial instrument. Just one year of dropouts costs the United States more than $319 billion in lost wages over their working lives. Without immediate and extensive intervention, in five years they will cost the country more than $1.5 trillion—far more than the federal government just committed to rescuing banks. Failure to take swift and comprehensive action will saddle every local, state, and federal government with increasing revenue losses, mounting costs to the taxpayer, and growing threats to job creation and global competitiveness.

Students are, most important of all, individuals. Each dropout faces a tragic loss of job opportunities and economic and social participation in our society. Civic engagement is much lower for dropouts; the likelihood of incarceration, much higher.

But there is hope. Unlike the toxic financial practices that brought down Bear Stearns and Lehman Brothers, at-risk students can readily be transformed from liabilities into assets—and with demonstrable economic benefits lasting for decades.

Many question whether the just-enacted, enormous federal commitment will ever be repaid to the taxpayer. There is no question, however, over the positive return on investment of converting dropouts into graduates. A recent economic analysis shows that simply cutting the high school dropout rate in half would generate an additional $45 billion in additional federal tax revenues and cost savings. For approximately $5 billion a yearless than 0.5 percent of the almost trillion-dollar financial bailout—we could invest in and turn around the nation's worst-performing high schools.

Just as the Treasury is now directing assistance to specific banks and other distressed businesses, the first step for creating far more high school graduates is targeting resources to turn around the 12 percent of America's high schools that produce nearly one-half of all dropouts. The federal financial rescue package requires changes in banking practices. The education investments must require similar systemic change based on building quality data systems, supporting quality professional development, creating vitally needed literacy programs, and promoting community involvement.

Beleaguered officials facing rapidly growing budget shortfalls may be wary of committing time and scarce resources to reversing severe dropout trends. Yet while the future return of a single stock certificate in a municipality's investment portfolio will always be unpredictable, converting one dropout to a college graduate adds another million dollars in working lifetime income to the economy. This is the kind of return that Warren Buffett's Berkshire Hathaway would be delighted to feature in its annual report.

While Treasury Secretary Henry Paulson admitted he was sailing in uncharted economic waters, far more is known about recovering dropouts than about distressed financial assets. Educators, philanthropists, grass-roots organizations, CEOs and community leaders across the nation are recognizing the looming burden in the immense human and economic costs of high school dropouts and are demanding action.

A nationwide effort is underway. The America's Promise Alliance, with the support of State Farm, is helping organize Dropout Prevention Summits in all 50 states and in 55 additional large U.S. cities. These summits offer an opportunity for engagement at all levelslocal, state, and federal—and provide a vehicle for taking action now. States and communities have already begun implementing plans to rescue at-risk students, rejuvenate underperforming schools, and raise graduation rates that routinely fall below 60 percent.