On top of that, states also spent $1.4 billion and the federal government spent $1.5 billion on grants for students who did not return for their sophomore year.
Findings in the report, "Finishing the First Lap: The Cost of First-Year Student Attrition in America's Four-Year Colleges and Universities," emphasize the economic significance behind the need to improve college completion rates.
At California State University in Los Angeles, about 25 percent of first-year students do not return for their second year. The school's Dean of Students Alfredo Gonzalez said his university does a lot to keep students in school, but other factors come into play.
"Money situation, financial issues, and other people have just different problems that inhibits them from coming to school every day," explained Cal State student Alexis Halliburton.
"University has to be a priority for them, not the only priority, but it has to be one of the main things that they are committed to devoting their time, energy, resources in order to be successful," said Gonzalez.
The dean went on to say that four-year colleges are not for everyone. A plan should be in place before making a commitment to any school. Many students agree.
"I think even people who don't know what they want to do in college should maybe try [junior college] before they come to a four-year college," said Halliburton.
Mark Schneider, a vice president at the American Institutes for Research, said the goal of the new report is to spotlight the costs of losing students after their freshman year, which is the most common exit door in college.
The report also serves the argument that too many students may be attending four-year schools.
Some experts say that the report brings drop-out rates to reality, suggesting that less-prepared, less-motivated students are better off not going to college.
The report found that California spent the most money in the nation to educate first-year dropouts, spending a total of $467 million from 2003 to 2008 in grants and funding to state colleges and universities.
The American Institutes of Research tracked new full-time students at over 1,500 public schools in the report, but it did not include part-time students, transfer students or those who came back later to graduate.
The Associated Press contributed to this report.