Liberal Education

The Hidden Costs of Low Four-Year Graduation Rates

The single most important step colleges and universities—especially public colleges and universities—can take to lower the student and family cost of college attendance is to improve retention, thereby increasing the four-year graduation rate. Indeed, if I had to pick one, and only one, statistic with which to measure the performance of a college or university in undergraduate education—independent or public—it would be retention: What percentage of first-year students return for their sophomore year? What percentage of an incoming cohort of first-year students graduate in four, five, or six years?

I would pick retention as my measure because in my over thirty years of engagement with institutional assessments of retention at three liberal arts colleges, looking at both the general literature and our own data, I have come to believe that institutions with high rates of retention to graduation have those high rates for three main reasons. First, they use multiple criteria—not just scores on high-stakes college entrance tests—to select for admission students who have demonstrated that they have the ability, academic preparation, and motivation to do college-level work, and they provide robust student support services to help students keep moving forward. In other words, very few students "flunk out," even among the disadvantaged students whom these institutions seek out and enroll. Second, they communicate who they are clearly and honestly to prospective students and their families, and they give honest feedback to otherwise attractive applicants who should probably choose a different institution to ensure the right "fit." And third, they meet the reasonable expectations of students and their families—the very expectations they lead students and families to have of them—to a high degree, and they work hard to fix things when they do not.

In addition to the obvious benefits for students and institutions, high retention rates also reduce what economists call the "opportunity costs" associated with the choice of a particular college. The choice to attend college is not just a decision to invest the necessary tuition, time, and effort to get a degree. It is also a decision to forego the earnings one might obtain from a job that does not require a college degree. Students and families understand that this particular opportunity cost is a necessary additional cost of college attendance. What they don't think enough about, however, are the opportunity costs incurred if students do not complete college on time, or if they decide to transfer to another institution. Transfer students may be required to retake courses already begun (and fully or partially paid for) but not completed at the previous institution. Or they may take courses they thought would be available at their initial institution but were not, so other courses were taken and paid for instead.

These "in principle" unnecessary opportunity costs can add up to the point where they equal or exceed the anticipated tuition savings of attending a lower-tuition public or independent college or university. Savings from lower tuition accrue to students and their families, as I show here, only if they complete their studies at a lower-cost institution on time. In this discussion of opportunity costs I consider only tuition and fees, because housing and food costs must be paid whether someone is in college or not. And I look not just at the full tuition and fees, but at average net tuition and fees—the average amount students pay after any scholarship grants they receive that they do not have to pay back—and the average net tuition and fees paid by students from the lowest quartile of family income in America.

In the average case, looking at net tuition and fees and without taking into account opportunity costs, it is approximately $10,250 more expensive for a student to attend an independent (private) college or university per year (excluding room and board, remember) than it is for a student to attend an in-state public institution (see table 1). Very surprisingly, for the average student, it is almost as expensive to attend a public institution as an out-of-state student as it is to attend an independent institution.

Table 1. Average published tuition and fees, and net tuition and fees for full-time students at U.S. public and private not-for-profit four-year colleges, 2009–10

 
Published
Tuition and Fees
Average Net Tuition and Fees
Average Net
Tuition and Fees
Lowest Income Quartile
Public Four-Year In-State
$7,020
$1,620
$0
Public Four-Year
Out-of-State
$18,548
$11,110*
$4,989*
Private Four-Year
$26,270
$11,870
$6,140†
Source: Data from the College Board, Trends in College Pricing 2009 (Washington, DC: The College Board, 2009).
 
*Estimate not included in Trends in College Pricing 2009, but was calculated using the same database by Sandy Baum, one of the authors of the report.
 
†I believe it unfortunate that the average net tuition and fees for the lowest income quartile of students attending private four-year institutions is so high. At St. Lawrence, where over 20 percent of students receive federal Pell grants (students receiving Pell grants are almost entirely from the bottom family income quartile), average net tuition and fees for incoming first-year students receiving Pell grants in 2009–10 was $239. I am very proud of that.

 

Table 2. First-to-second-year retention and four-, five-, and six-year graduation rates: Four-year public and private colleges and universities, 2009

 
1st to 2nd Year
4-Year
5-Year
6-Year
Public
72.9%
27.0%
44.0%
49.0%
Private
73.0%
48.5%
57.5%
59.2%
]Source: Data from the American College Testing Service, College Retention and Graduation Rates, www.act.org/research/policymakers/reports/graduation.html#1.

Let's look now at ACT's summary retention statistics for 2009 (see table 2). The first thing to see in these data is that, when comparing public and private institutions, first-to-second-year retention rates do not differ. And after controlling for institutional selectivity, public and private institutions do not differ appreciably, although more selective institutions have much higher first-to-second-year retention (90.2 percent for highly selective publics, and 92.3 percent for highly selective privates; 65.1 percent for open-admissions publics, and 66.6 percent for open-admissions privates).1 With regard to four-year graduation rates, on the other hand, students who attended public institutions graduated in four years 21.5 percentage points less often, and this rough magnitude of difference exists at all levels of institutional selectivity. The overall four-year graduation rate from public institutions is an astonishingly low 27 percent.2 Even more striking is the contrast between the four-year graduation rates of highly selective public or private institutions and those of public and private institutions overall: a 33.6 percentage point difference between the public average (27 percent) and the highly selective public average (60.6 percent), and a 29.2 percentage point difference between the private average (48.5 percent) and the highly selective private average (77.7 percent).

So how does one compare differences in opportunity costs between public and private institutions? In figure 1, I present several estimates based on different assumptions regarding what students do in their fifth years. In Scenario 1, all students who did not graduate in four years, but who ultimately graduated in five years from the institution in which they enrolled as freshmen, are assumed to be in college full time during their fifth year, paying college tuition and fees, and not in the workforce.3 In Scenario 2, fifth-year students are assumed to be in the workforce half time and to be paying half-time college tuition and fees.4 In Scenario 3, it is assumed that somehow students graduating after five years pay no additional tuition and fees in their fifth year but still are able only to work half time. I then compare the total cost, for in-state and out-of-state students, of graduating from a public institution after five years—out-of-pocket tuition and fee costs plus lost income—to the four-year cost of attending a private college using the three scenarios just outlined.

Figure 1. Cost of graduating at public institutions after five years versus cost of four years at private institutions

Cost of graduating at public institutions after five years versus cost of four years at private institutions

Non-aided students in private institutions would still be ahead financially if they chose to attend an in-state public institution instead, even if it took them five years to graduate instead of four—and the chance is high that they would not finish in four years; only 26.7 percent of students attending public institutions do so. However, the cost savings would be considerably less ($23,980 as opposed to $77,000). On the other hand, non-aided students in out-of-state public institutions—with the same high probability of not finishing in four years—would save money in Scenarios 1 and 2 if they chose instead to attend a private institution and finished in four years.

In Scenario 1, the total cost for out-of-state students who attend public institutions and graduate in five years instead of four is $138,740, as compared to $105,080 for four years in a private institution (a difference of $33,660). If the comparison is with in-state public tuition and fees, average-net-cost students would save money in Scenario 1 if they graduate in four years from a private as opposed to five years from a public, but not in Scenarios 2 and 3. If, on the other hand, the comparison is with out-of-state tuition, these students would save money in all three scenarios if they graduate in four years from a private as opposed to five years from a public. Students from the lowest quartile of family income would save money in all three scenarios if they graduate in four years from a private institution as opposed to five years from a public, whether the institution is in or out of state.

Discussion

In this time of special financial stress for so many American families, the cost of college attendance may seem especially daunting. Prospective students and their families should, therefore, consider the implications of this analysis as they weigh the differences between public and private higher education options—and between high-four-year-graduation-rate and low-four-year-graduation-rate options, whether public or private. It is clear from all the scenarios presented in figure 1 that if a student manages to graduate in four years from a public institution, the total cost of attendance will be lower than at a private institution. On the other hand, the risk of not graduating in four years is much higher at a public institution. In the event that a student attending a public institution does not graduate in four years, but could have done so by attending a private institution, the cost savings of the public choice remain only if the student is non-aided and attending an in-state public institution.

To return to where I began, the single most important step colleges and universities—especially public colleges and universities—can take to lower the student and family cost of college attendance is to improve retention, thereby increasing the four-year graduation rate. With the exception of the rates for highly selective institutions (and these can be higher, with work, as well), the four-year graduation rates of both public and private colleges and universities in America are embarrassingly low.

I know from long experience that improvements in retention and graduation rates do not happen overnight. It took most of my thirteen-year term as president of St. Lawrence University to see the first-to-second-year retention rate increase from 82.4 percent to 91.7 percent, to see the four-year graduation rate increase from 65.5 percent to 76.2 percent (in 2009), and to see the six-year graduation rate increase from 70.9 percent to 80.9 percent. But while yearly progress is slow, the cumulative changes that can be accomplished over a decade are significant: students and their families benefit financially from improvements in first-to-second-year retention and in the four-year graduation rate, and the institution itself benefits financially in several ways. Most significantly, it benefits from enrollment growth in the upper division and from additional tuition in students' fifth and sixth years when they stay to the finish—even if that takes six years—rather than dropping out.

Student preparation, motivation, and ability to finance college are all critical to graduating on time. But so, too, is the level of commitment by the institution to meet the reasonable expectations of students and their families in the area of institutional performance, including the provision of student support services that have been shown by research to improve retention and degree attainment. In a study of the levels and patterns of spending at twenty highly effective institutions involved in Indiana University's Documenting Effective Educational Practices (DEEP) project, for example, the National Center for Higher Education Management Systems found that these highly effective institutions "spent a noticeably higher proportion of their available dollars on 'academic support,' a category in [the Department of Education's Integrated Postsecondary Education Data System] under which most institutions report resources dedicated to such things as faculty development, teaching and learning centers, and academic support staff such as tutors and counselors. These were precisely the activities that the DEEP research team noted as key contributors to a campus ethos devoted to student success when they visited these institutions" (Ewell 2008, 11). Similarly, researchers at the Cornell Higher Education Research Institute found that "student service expenditures influence graduation and persistence rates, and their marginal effects are higher for students at institutions with lower entrance test scores and higher Pell Grant expenditures per student. Put another way, their effects are largest at institutions that have lower current graduation and first-year-persistence rates. Simulations suggest that reallocating some funding from instruction to student services may enhance persistence and graduation rates at those institutions whose rates are currently below the medians in the sample" (Webber and Ehrenberg 2009, 1).

Pursuing improvements in on-time degree attainment with focus and commitment, using well-understood strategies that are strongly supported by assessment research, is one of those cases where doing right by students educationally also does right for them and for institutions financially.

An inescapable conclusion from the analysis presented in this article is that, when one looks at the whole picture, American colleges and universities are underperforming with regard to on-time degree attainment, and that hurts students, families, colleges and universities, and the total well-being of our communities and nation. It is hard to find a good excuse for our underperformance in this area, and so it is not surprising that the din of public criticism has been rising!

References

Ewell, P. 2008. No correlation: Musings on some myths about quality. Change 40 (6): 8–13.

Jaschik, S. 2010. Why they take so long. Inside Higher Ed, April 14, www.insidehighered.com/news/2010/ 04/14/degree.

Webber, D. A., and R. G. Ehrenberg. 2009. Do expenditures other than instructional expenditures affect graduation and persistence rates in American higher education? NBER Working Paper No. 15216, www.ilr.cornell.edu/cheri/upload/cheri_wp121.pdf.

Wellman, J. V. 2010. Connecting the dots between learning and resources. Champaign, IL: National Institute for Learning Outcomes Assessment.

Notes

1 ACT has five categories of selectivity: highly selective, selective, traditional, liberal, and open.

2 Further support that the graduation rate differences between public and private institutions are not due to differences in average student preparation for college may be found in Jaschik (2010), which summarizes a new study from the National Bureau of Economic Research: "One theory—frequently advanced by those who question the goals of having more Americans earn college degrees—is that those coming into higher education outside of competitive colleges are less well prepared, and so are unable to move ahead in college at expected rates. But the authors find no evidence for this (based either on the courses students have taken before college or on their performance in college), and reject this theory."

3 Salary foregone is estimated to be $46,000, the average starting salary for a college graduate as of March 30, 2010, according to simplyhired.com.

4 According to EarnMyDegree.com, the average
annual salary earned by workers of all ages with some college was $36,800 per year in 2009. In Scenarios 2 and 3, then, foregone salary is $46,000 minus half of $36,800, or $27,600.

5 For a very good review of recent research on how to improve degree attainment, see Wellman (2010).


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