Strategy 5: Including a "Return on Investment"

Table 4

The last three estimates make a conservative assumption: that the "return on the investment" of teaching students basic skills is "a wash." That is, we are assuming that spending roughly $13,000 to remediate a student who is two years behind on learning basic skills (Strategy 3's annual "per successful graduate cost" of $6,553 times two years of remediation) will save only $13,000 later in that student's life. The return is likely to be much greater. If possessing basic skills increases a worker's productivity, that $13,000 could easily yield many times the original investment, especially when one considers that the increase in productivity occurs over the worker's entire working life. Conversely, failing to remediate a student or worker for $13,000 may ultimately cost society many times more money. The costs of incarceration, welfare, and unemployment are quite high compared to the cost of education.

If we change the cost estimate used in Strategy 3 so that the return on remedial education expenditures is a modest 3-percent real return over a 30-year period, the cost balloons to $1.15 billion. The calculation is as follows: $89 million (the direct expenditures by higher education) + [$6,552.66 (the cost per pupil per year of producing a successful graduate) multiplied by 29,085 (the number of dropouts) multiplied by 2.29 (the number of years they are missing on average from high school, which is an indicator of how far behind they are) multiplied by 1.03^30 (which is how much a dollar is worth after thirty years compounded at 3%)] = $1.15 billion.

Even this large number, however, may well be too low an estimate of the cost of the lack of basic skills. A 3-percent real return may be too low. (The real return on 30-year Treasury bonds is closer to 4 percent, while the real return on investments in the stock market over the past 30 years has been much larger.) In addition, there are still many costs that we are not including in our estimate. For example, we make no allowance for the lost wages experienced by students whose full entry into the workforce is delayed or interrupted by having to enroll in remedial education courses in post-secondary institutions. And our prior estimate does not include students who graduate from high school lacking basic skills and never enroll in remedial courses. Even our highest estimate of a little more than $1 billion may well be too low.