The Cost of College Dropout
The college dropout rate carries financial implications for students
Earning a college degree can unlock career opportunities but the cost can be prohibitive for some students. For the 2017-18 academic year, the average annual cost of tuition, fees, and room and board at public four-year universities totaled $36,420 for out of state students. Private school attendees paid an average of $46,950.
When tuition becomes unmanageable, it can have a direct impact on the college dropout rate. According to College Atlas, 70 percent of Americans will study at a four-year college but less than two-thirds will graduate with a degree. Thirty percent of college freshmen drop out after their first year of school. A LendEDU survey found that 55 percent of students struggled to find the money to pay for college and 51 percent dropped out of college because of financial issues.
The college dropout rate can be even higher for students who are the first in their family to attend college. Eighty-nine percent of low-income first-generation students leave school without a degree, four times the rate for second-generation students.
Dropping out of college can have serious financial ramifications for students that can impact them over the short- and long-term.
How the College Dropout Rate Affects Earning Power
Whether you hold a college degree or not can be a significant factor in determining your career path. Many higher-paying occupations, such as being a doctor, lawyer or engineer, require a degree. Without one, college dropouts may find themselves funneled into lower-paying jobs.
But just how wide is the income gap between students who earn a degree and those who don't? Different sources offer different estimates.
According to College Atlas, college dropouts earn $21,000 less per year compared to college grads. The Economic Policy Institute estimates that college grads with a bachelor's degree earn $32.40 per hour on average, while those holding advanced degrees earn $41.58 hourly on average.
Comparatively, workers with only some college earned an average of $19.41 hourly in 2017. That can add up to a substantial difference over the course of a working career.
Assume that you earn both a bachelor's and graduate degree. You begin your career at age 25, earning $41.58 per hour. Based on a 40-hour work week with two weeks off per year for vacation, you'd earn $83,160 annually, before taxes, health insurance or retirement plan contributions are deducted.
Now, assume you drop out of college in your sophomore year. You begin your career at age 25 earning $19.41 per hour instead. Assuming the same 50-week per year formula, your annual income prior to taxes, insurance, and retirement deductions would be $38,820, a difference of $44,340.
Over a 40-year career, holding an advanced degree would result in a lifetime earnings total of just over $3.3 million. Having just some college under your belt would reduce your lifetime earnings to just over $1.5 million. That's a steep difference.
Earning a lower income can make it more difficult to achieve your financial goals, such as building an emergency fund, buying a home, planning for retirement or saving for college for your own children. It can also present another challenge if you're dropping out of college with debt.
College Dropouts Struggle to Escape Student Loans
Taking on student loan debt to finance a college degree isn't an ideal situation and loans can present an even greater burden for students who drop out. According to LendEDU, the average college dropout leaves campus with nearly $14,000 in student loan debt. More than half, 53 percent, aren't making any payments towards their loans. Forty-seven percent of dropout debtors are in default on their loans.
Not being able to keep up with student loan debt after dropping out can be problematic for two reasons. First, interest and late fees can continue accruing on student loans, increasing the total balance owed over time. Once a student who's dropped out is ready to tackle their loan debt, they may be faced with a bigger challenge than they anticipated.
The other issue is the impact on credit. When you default on student loans, either federal or private, the default and any associated late or missed payments can be reported on your credit. Payment history accounts for the largest percentage of your FICO credit score and a student loan default can be devastating to your credit rating.
A lower credit score can make it more difficult to get approved for credit cards, personal loans, a car loan or a mortgage. And if you are able to get approved, you may end up with a much higher interest rate than you would have if you'd had good credit. Over time, that higher rate can make borrowing much more expensive.
How to Avoid Becoming a College Dropout Rate Statistic
Staying in school can help avoid financial headaches down the line. These tips can be useful in staying motivated to continue your educational journey.
- Give serious thought to what type of degree you want to earn. Have a plan for the courses you'll need to take to reach your goal and pace yourself according to what you can reasonably accomplish.
- Set a budget for your finances and avoid borrowing more in student loan debt than you need. Look into work-study, scholarships, grants or a part-time job as ways to reduce some of the financial strain associated with paying for a degree.
- Manage time wisely and establish boundaries so you have time to commit to studying and working. Include time for socializing in your schedule but make education your top priority.
- Create a support system of friends, family members, and faculty. Having people to offer encouragement and direction can make it easier to the course when you're tempted to give up.
- Consider taking a break if you need one. Taking a semester off or reducing your course load could ease some of the pressure you're feeling. Just remember that if you drop below half-time enrollment status, that could affect your financial aid eligibility.