What is the financial cost when students leave high school without having acquired basic academic skills? This report describes the complicated answer to that simple question for the state of Michigan. Employing five different calculation strategies, we calculated annual costs ranging from $311 million to as high as $1.15 billion. The average of these five strategies—and the best estimate of the annual cost of the failure of Michigan students to acquire basic skills in high school—is $601 million per year.

Calculating these costs is made especially difficult by the ambiguity surrounding what are considered "basic skills," the difficulty of isolating costs that are related to the lack of those skills, and the general scarcity of quality data available on the issue. At each stage we made conservative assumptions when faced with these difficulties, which is to suggest that our estimate of $601 million may be a low figure. This estimate is considered conservative because it does not include college-level work that has been "watered-down" but not considered remedial; expenditures on technology by businesses to accommodate for lack of basic skills; capital expenditures required to provide remedial education; or the large percentage of students and employees in need of remediation but who never receive it. If, however, the $601 million figure is an accurate estimate of the cost of the lack of basic skills in Michigan, and if the costs nationwide are comparable, then the exit from high school of students lacking in basic skills costs in the neighborhood of $16.6 billion annually in the United States.1