What is the financial cost to colleges of student dropouts?

About 2 years ago, Carolyn Bickers and I were attending the LearnLaunch EdTech accelerator in Boston, MA (they are wonderful — you should find an excuse to go say hi!). I remember being shown a slide titled, “Wants and Needs of US Institutions.” On the left it listed “Student job success,” “Student grades,” and “Student skill development.” Those were the wants: the things that institutions would love to do but they don’t really need to. It has been a hard process learning that institutions really don’t have to worry about the success of their students. Institutions do need to make money to keep alive. The needs on that slide were things like “increase freshman enrollment,” “decrease dropout rates,” and “reduce per-student teaching costs.”

Unfortunately, money is perhaps the biggest influencer of behavior, even for non-profit organizations on a social mission. One of the needs of colleges, though — reducing drop out rates — achieves both a financial outcome and a moral one, and so it seems a great place to focus as a social entrepreneur trying to make an impact. I wanted to understand what the financial cost to colleges really was.

Calculating the Cost

How much does a single drop out cost colleges

I’ll approach this by trying to estimate the cost that a single drop out costs a college, and multiplying that by the number of dropouts per year. I figure there are two primary costs of a drop out: 1) lost tuition revenue, and 2) cost of recruiting a new student to replace the drop out.

This Ruffalo Noel Levitz Report lists two numbers for the cost of recruiting one student. $536 for public institutions and $2,357 for private.

US News provided some data on average tuition. They split their data into three categories. $35,087 per year for private institutions. $21,184 per year for public out-of-state tuition. $9,687 per year for public in-state tuition.

How long does it take a college to replace a dropout, and therefore how many semesters of tuition revenue do they lose?

I decided to just assume one semester of tuition revenue was lost for each dropout. It seemed a fair estimate if the rate of dropouts is roughly uniform throughout the school year. That said, colleges might be able to bring in new students mid-semester. If they do, then this estimate might be off.

Dividing Up the Market

Given the vast differences between these three sub-markets, I decided to split my own calculations three ways as well: cost to private institutions, cost of public out-of-state student drop outs, and cost of public in-state student drop outs. I left out private for-profit colleges entirely.

How many students drop out each year?

This ended up being rather hard to figure out because I couldn’t find the total number of new students who enroll in college each year. I had hoped to just calculate new enrollments * percent who drop out. No luck.

Instead, I ended up back-tracking from the number of associates and bachelor degrees given. The National Center for Educational Statistics (NCES) offered good numbers for total degree’s granted and completion rates for associate’s and bachelor’s degrees. For bachelor’s degrees, 61% of students at public institutions and 67% of students at private institutions graduate in 6 year. Here’s where I got:

What percentage of students at a public institution are out-of-state?

I couldn’t easily find a hard number on this, but by perusing the USA Today data, I estimated the average institution has about 20% out-of-state students. If someone wants to scrape all the data from their site and calculate the average across all institutions, that would be awesome!

Putting it all Together

After summing the dropouts from bachelor’s and associate’s programs, and distributing those dropouts between out-of-state and in-state students, we get a whopping $27.1 billion dollar loss for US institutions every single year!