The Cost of Being a College Dropout

Dropping out of college carries financial implications.

college student studying and using a highlighter with an open book

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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 undergraduates 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 fewer than two-thirds will graduate with a degree, and 30% of first-year students drop out by the end of their first year of college. A LendEDU survey found that nearly 55% of students struggled to find the money to pay for college, and 51% dropped out because of financial issues.

The percentage of college dropouts can be even higher among 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 and 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 require a degree. Without one, college dropouts may find themselves funneled into lower-paying jobs.

College dropouts earn, on average, $21,000 less per year than college grads. 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 an average of $45.07 per hour. Comparatively, workers with only some college education earned an average of $20.97 per hour. 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 earned both a bachelor's and graduate degree and begins his career 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 earnings of just over $3.3 million, without factoring in raises.

Jill drops out of college in her sophomore year and begins her career 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, which is a difference of $44,340 from Jack's. Over 40 years, her earnings would be just over $1.5 million, which is 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 $13,929 in student loan debt. Further, 53% aren't making any payments toward their loans at all, and 46.5% 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:

  1. Additional interest and late fees
  2. Negative impact on your credit

Interest and late fees can continue to accumulate 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 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.

If you qualify for student loan forgiveness, which is available under certain circumstances, the forgiven amount isn't always income tax-free. The American Rescue Plan has made student loan forgiveness tax-free through December 31, 2025.

Avoid Becoming a Dropout Statistic

Staying in school can help you avoid financial headaches down the road. Before dropping out, truly weigh the costs of college vs. working after high school. These tips may help you stay 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 than you need: Look into work-study plans, scholarships, grants, or part-time jobs 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.

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