Increasing Completion Rates

Not everyone who enrolls in college graduates, and for many higher education institutions a surprisingly large share of students does not. This makes completion rates at two- and four-year institutions a plausible area for policy-makers to focus on in order to increase educational attainment.

The scale of the problem is apparent in College Scorecard data from the U.S. Department of Education, which show completion rates for all U.S. higher education institutions. At the worst-performing four-year colleges, only 23 percent of students finish their degrees.⁴ For two-year colleges, completion rates in the worst performing group are only 9.8 percent. The gap between these worst-performing and best-performing schools is large: The top 5 percent of four-year colleges can boast 93 percent completion rates, and the top 5 percent of two-year schools have a 64 percent completion rate. Overall, 61 percent of first-time students at four-year universities finish their degrees within eight years, while 21 percent of students at two-year programs finish within four years.

Estimating precisely how much the completion rate could be improved with various policy levers is beyond the scope of the research. Instead, we simply model the effects of one possible scenario that will phase in over the next ten years. First, four-year colleges at which the completion rate is below 50 percent will see their completion rates increase by half, while those with completion rates above 50 percent will see their noncompletion rates decrease by half. For example, for the lowest completion rate group, this would amount to an increase in the completion rate from 23 percent to 35 percent (23% x 150% = 35%), while it rises in the highest group from 93.4 percent to 97.6 percent—a halving of the 6.6 percent noncompletion rate (see Chart 4). The same rule applies for associate’s degree schools, and it also phases in over ten years (see Chart 5).

Although this scenario is optimistic, it is important to note that these results could be achieved in two ways. First, completion rates could increase at some colleges. Second, more students can enroll in schools with higher completion rates and shift away from schools with lower completion rates. Recent efforts from the Department of Education have led low-performing for-profit universities to shut down, and research has shown that small nudges can push students into enrolling in better schools. For example, Caroline Hoxby and Sarah Turner show how at a cost of only $6 per student, high-ability, low-income students can be encouraged to apply and be admitted to more selective colleges.⁵ Indeed, the College Scorecard data used in this analysis is an example of an attempt by the Department of Education to provide students with better information.

However, our scenario is not an attempt to examine the plausibility of increasing completion rates as much as proposed, but to examine the effects on the economy if such an improvement were achieved.

Whether through improvements in completion rates at specific schools or reallocation of students toward schools that already do better, the net effect of cutting average noncompletion rates in half would be to raise bachelor’s completion rates from 61.4 percent to 77.6 percent, a 16.3 percentage point increase (see Chart 4).⁶ This translates into a 26.5 percent (16.3% / 61.4%) increase in the number of students in each age cohort with a college degree by the time the phase-in is complete. The scenario assumes that this effect is phased in over ten years, for an annual improvement rate of 2.4 percent (1.2651/10–1).

Chart 4: Higher Bachelor’s Completion Rates

Sources: U.S. Department of Education and Moody’s Analytics

In addition, the scenario assumes the same changes for completion rates for students pursuing associate’s degrees. As a result, average completion rates increase from 26.2 percent to 38.5 percent, or 12.4 percentage points (see Chart 5). This boost translates into a 47.3 percent (12.4% / 26.2%) increase in individuals with an associate’s degree for each cohort by the time the phase-in is complete in ten years. Accordingly, the improvement rate climbs annually by 3.9 percent (1.4731/10–1).

Chart 5: Higher Associate’s Completion Rates

Sources: U.S. Department of Education and Moody’s Analytics

An important effect of this policy is a likely increase in the college attainment of African-American and Hispanic students. These students disproportionately attend schools with low completion rates (see Chart 6). Therefore, the improvements at these schools would likely have a particularly notable effect on the completion rates of African-American and Hispanic students.

Chart 6: Minorities Disproportionately Affected

Sources: U.S. Department of Education and Moody’s Analytics

ENDNOTES

4. This analysis focuses on 2,447 institutions that are primarily four-year schools and 891 primarily two-year schools. It excludes from the analysis the following institutions: non-degree granting, certificate-only institutions, graduate degree-only institutions, closed, and zero enrollment. Students used in the calculation of graduation rates are first-time, full-time students. An implied assumption of this analysis is that the effects on other students are similar.

5. Caroline Hoxby and Sarah Turner, “Expanding College Opportunities for High-Achieving, Low Income Students,” Stanford Institute for Economic Policy Research discussion paper 12–014 (2013).

6. Because of rounding, 61.4 percent and 16.3 percent do not sum to 77.6 percent.