Closing doors: what do school dropouts cost us?

Keeping students engaged in school for longer is a wise investment. Student image from

As students head back to school this year, it’s worth sparing a thought for the many students who won’t return. In fact, each year thousands of young people leave school without a Year 12 qualification or vocational equivalent.

For their own sake, we should be concerned about what these kids go on to do (or not do as the case may be).

But these school leavers also bring a cost to the economy – costs which are harder to measure than you might imagine.

Counting the loss

Retention to Year 12 has climbed from 46% nationally in 1985 to 79% in 2011. Despite this improvement, the fact remains 21% of students leave early without a Year 12 qualification.

In the short term at least, these early school leavers save the government money because each school student costs the government about $15,000 per year. Under the Compact with Young Australians a young person up to the age 21 who hasn’t completed Year 12 or equivalent cannot get Youth Allowance and their family loses the Family Tax Benefit Part A.

In some cases, parents (or young people themselves) are even fined if the young person is not in full-time school, training or work before they turn 17.

Despite these short-term savings, governments want young people to complete school or a vocational equivalent because when they don’t, it costs much more in the end.

Most research in this area is quite old but it can give an indication of the cost of early school leavers and the financial benefits of increasing school completion.

One 1999 estimation put the cost to each individual early school leaver at around $15,000 per year in lost income, while the total cost of early school leaving nationally is $2.6 billion per year.

Another piece of research in 2003 estimated that the benefit of increasing the proportion of young people with Year 12 or equivalent from 80% to 90% would increase GDP by $1.8 billion within 20 years.

In the US, where more recent research has been done on this, it has been estimated that each additional high school graduate is worth US $127,000 to the taxpayer.

Weighing up the benefits

These kinds of estimates are usually based on statistical likelihoods, for example of being employed and having higher lifetime earnings, and sometimes also of having better health and not committing criminal offences.

This leads to higher taxes being paid and lower costs to the community by people how have completed Year 12 compared to early school leavers.

The reason statistics show better outcomes for those who copmlete Year 12 than for early school leavers is because the Year 12 certificate represents skills, knowledge and personal development.

But the catch-22 for governments is that instituting policies that raise the school leaving age won’t necessarily lead to those benefits. If young people are coerced to stay in school and they are simply marking time and waiting for the bell to go each day, then any Year 12 certificate they acquire is potentially worthless.

So rather than measuring the benefit of Year 12 completion in the abstract, we need to measure the benefits of programs that not only help students complete Year 12 but also help them have real learning experiences.

Real learning

One example is provided by a program called Hands On Learning, an in-school program that students attend for one day per week. The other days they attend their regular classes.

Hands On Learning uses practical, project-based activities to support students’ learning as well as their social and emotional development.

A recent report by Access Economics assessed the costs and benefits of a disadvantaged and disengaged student either taking part in the Hands On Learning program or not. It found that for an individual student, the cost was estimated at $52,300, leading to an increase (compared to early leaving) of lifetime earnings of $562,260. The net benefit of the program since 1999 is calculated as $1.6 billion.

This estimate of benefits is substantial, but is also quite conservative. It does not include other financial benefits (increased taxes paid, increased consumption, increased GDP) and does not measure the vital but hard to quantify benefits of a positive educational experience, such as improved health, improved life satisfaction, and improved social inclusion.

Name your price

Of course, Hands On Learning is just one example of many programs around the country that do good work to improve outcomes for disadvantaged students.

As the Access Economics report points out, “the costs of early school leaving are much higher for students from a background of disadvantage”. Without the benefits of wealth and family connections, these young people rely much more on education to open doors to good jobs.

But, as the Gonski review notes, far too little is known about the impact of specific funding and education programs for disadvantaged students. Governments need to invest in gathering sound evidence of the outcomes for young people in these programs.

Such evidence can demonstrate that programs that may seem expensive are actually a worthwhile investment. Too often, programs that do an impressive job of improving young people’s lives – and of improving the way in which school is done – don’t survive due to unsustainable funding.

Too often, these programs are seen as charity, rather than investment in the future.

Of course, the financial benefits are only part of the value of programs. But if nothing else, naming a dollar value may finally convince state and federal governments to make funding of such programs sustainable and secure. Because in the end, not doing so will cost the country a whole lot more.