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This paper examines why students drop out of school and what can be done about it. After briefly summarizing who drops out of school, the paper reviews the theoretical and empirical research that attempts to explain why students drop out of school based on two different conceptual frameworks that are both useful and necessary to understand this complex phenomenon. One framework is based on an individual perspective that focuses on individual factors associated with dropping out; the other is based on an institutional perspective that focuses on the contextual factors found in students’ families, schools, communities and peers. The paper also discusses the extent to which these frameworks can be used explain differences in dropout rates among social groups, particularly racial and ethnic minorities. The next section of the paper examines various strategies to address the dropout, reviewing examples of both programmatic and systemic solutions, and the extent to which policy can promote them. The final section of the paper discusses whether the United States has the capacity and the will to reduce dropout rates and eliminate disparities in dropout rates among racial and ethnic groups. Despite a long-term upward trend in school completion in the United States, each year about 5 percent of all high school students drop out of school (Kaufman, Kwon, Klein, and Chapman, 1999, Table 1). In the 1997-98 school year 479,000 students dropped out of high school (U.S. Bureau of the Census, 1999, Table 7). . Yet a substantially higher proportion of students quit school sometime over their educational careers. One longitudinal study of young men who were 14 to 21 years of age in 1979, estimated that 37 percent had quit high school for at least a 3 month period, even though in 1990, when the young men were 25 to 32 years old, only 14 percent were classified as high school dropouts (Klerman & Karoly, 1994). Another longitudinal study of students who were 8 graders in 1988 found that 21 percent had dropped out school at some point since 8 grade, even though only 12 percent—roughly half of that number—had not completed high school by 1994 (Rumberger & Lamb, 1998). Not only are a sizeable proportion of students dropping out, an increasing number of students are completing high school by getting a GED or through other alternative means rather than earning a traditional high school diploma. Although the proportion of youth completing high school has remained steady over the last decade, the proportion earning high school diplomas has actually declined. In 1988, 80 percent of 18 to 24-year olds earned a high school diploma; in 1998, 75 percent earned a high school diploma (Figure 1). In other words, 10 percent of all young people completed high school through an alternative means in 1998 compared to 4 percent in 1988. The reason the method of high school completion may be important is because some recent studies have questioned whether the economic payoff to a high school equivalency is comparable to a traditional high school diploma (Cameron & Heckman, 1 This figure includes persons 15 to 24 years old who were enrolled in grades 9-12 the previous year, were not enrolled in school in October 1998 and had not graduated. It excludes another 36,000 students who dropped out from grades 7 and 8.