The Cost of Being a 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 2019-2020 academic year, the average annual cost of tuition, fees, and room and board at public four-year universities totaled $38,330 for out-of-state students. Private nonprofit school attendees paid an average of $49,870.
When tuition becomes unmanageable, it can have a direct impact on the college dropout rate. According to College Atlas, 70% of Americans will study at a four-year college, but less than two-thirds will graduate with a degree, and 30% of first-year students drop out after their first year of school. A LendEDU survey found that 55% of students struggled to find the money to pay for college and 51% dropped out of college because of financial issues.
The percentage of college dropouts can be even higher for students who are the first in their families to attend college. Up to 89% of low-income first-generation students who are the first in their families to attend college leave without a degree. Dropping out of college has serious financial ramifications for students that can impact them over the short- and long-term.
The Effect on 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 a doctor, lawyer, or engineer—require a degree. Without one, college dropouts may find themselves funneled into lower-paying jobs.
College dropouts earn $21,000 less per year than college grads, according to College Atlas, and the Economic Policy Institute estimates that, in 2019, college grads with a bachelor's degree earned $34.63 per hour on average, while those holding advanced degrees earned $45.07 per hour. Comparatively, workers with only some college earned an average of $20.97 hourly. Those are big differences that can add up to a substantial amount of money throughout a working career.
Consider the hypothetical examples of Jack and Jill: Jack earns both a bachelor's and graduate degree, and begins his career at age 25, earning $41.58 per hour. Based on a 40-hour workweek with two weeks off per year for vacation, Jack earns $83,160 annually, before taxes, health insurance, or retirement plan contributions are deducted. Over a 40-year career, he enjoys lifetime earnings of just over $3.3 million, without factoring in raises. Jill drops out of college in her sophomore year and begins her career at age 25 earning $19.41 per hour instead. Assuming the same 50-week-per-year formula, Jill's annual income before taxes, insurance, and retirement deductions would be $38,820—a difference of $44,340 from Jack's. Over 40 years, her lifetime earnings are just over $1.5 million; less than half of Jack's total.
Earning a lower income can make it more challenging 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. Further, 53% aren't making any payments toward their loans, and 47% 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:
- Additional interest and late fees
- Negative impact on your credit
Interest and late fees can continue accumulating on student loans, increasing the total balance owed over a period. Once a student who has dropped out is ready to tackle their loan debt, they may be faced with a bigger challenge than they anticipated.
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 and will affect your score. 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. Even if you can get approved, you may end up paying a much higher interest rate than you would have received if you had good credit. Over time, that higher rate can make borrowing much more expensive.
Avoid Becoming a Dropout 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 plans, 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: 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 stay 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.