More than half the states have graduation goals that don't make schools get better, the Education Trust says in a report released Thursday.
And dropout rates haven't budged: One in four kids is dropping out of high school.
"The U.S. is stagnating while other industrialized countries are surpassing us," said Anna Habash, author of the report by Education Trust, which advocates on behalf of minority and poor children. "And that is going to have a dramatic impact on our ability to compete," she said.
In fact, the United States is now the only industrialized country where young people are less likely than their parents to earn a diploma, the report said.
High schools are required to meet graduation targets every year as part of the 2002 federal No Child Left Behind law.
But those targets are set by states, not by the federal government. And most states allow schools to graduate low percentages of students by saying that any progress, or even the status quo in some cases, is acceptable.
Why are states setting the bar so low?
Because they can, said Bob Balfanz, a researcher at Johns Hopkins University.
State and school officials are under pressure to improve test scores under the No Child Left Behind education law or else face penalties. But they got a break on graduation rates: Schools have to meet annual goals, but the government lets each state set its own goal.
"A lot of states said, `Well, we're under a lot of pressure; let's not make this too hard on ourselves,"' Balfanz said. "They were given a loophole, and they took it."
So in North Carolina - which has won praise for a series of innovations to keep kids in school - the graduation goal has not changed. Officials are coming up with a new goal but are hoping that No Child Left Behind will be rewritten to be less punitive.
"To be candid, we're waiting for NCLB to change," said June Atkinson, North Carolina's state schools superintendent. "Those numbers do not tell the story. Our mission is that 100 percent of our students will graduate from high school. Needless to say, we have a lot of work to do."
In Maryland, officials say their slower goal is more realistic.
"If you really want to bring about change, you have to have reachable goals that people believe they can work toward," said Ronald A. Peiffer, Maryland's deputy superintendent for academic policy.
"By not making these numbers pie-in-the-sky, I think we have a better chance," Peiffer said.
Graduation rates take longer to improve than test scores, because a child's educational experience must be transformed over a period of years, Peiffer said.
The U.S. was slow to realize it was facing a dropout crisis. For years, researchers reported dropouts as the number of kids who quit school in 12th grade, failing to capture those who left high school earlier.
States and schools clouded the picture by using a mishmash of different methods to keep track of students who graduated, transferred or dropped out.
Then came the 2002 No Child Left Behind law, with its requirement that states meet graduation goals. In 2005, the nation's governors made a pact to adopt a common system of tracking graduation rates.
Now the federal government is poised to raise the bar on graduation rates. Education Secretary Margaret Spellings is expected to issue new rules next week that will force states to use the common tracking system and will judge schools not only on graduation rates but on the percentage of black and Hispanic students who graduate, too.
Among minority students, more than one in three students drops out of school.
Spellings proposed the new rules earlier this year. Final rules may differ somewhat, but Spellings said earlier that states would be required in most cases to count graduates as kids who leave high school on time and with a regular diploma.
Critics have worried that by judging test scores more heavily and graduation less so, No Child Left Behind encouraged schools to push weak students out.
Balfanz, the Johns Hopkins researcher, said the dropout problem is driven by "dropout factories," schools in poor communities where kids face challenges inside and outside the classroom.
He argued the government could make a big dent in the dropout problem by plowing more money, and firm guidance on how to spend it, into those schools.
More resources are desperately needed, said Mel Riddle, who retired in July as principle of T.C. Williams High School in Alexandria, Va.
"The world's changed; we have to change to meet those demands," said Riddle, now an official of the National Association of Secondary School Principals. "To think we can do it in the same way, with the same resources, is not realistic."