Using an exchange theory perspective, this study evaluates the degree to which school rejection policies and racial discrimination contribute to the decision of black students to disengage from the education exchange process and drop out of school. In the exchange theory perspective the student is viewed as a party in an exchange relationship with teachers and schools. The exchange relationship will continue as long as both parties see themselves as making a "profit." The sample population studied was made up of secondary students from majority and minority groups in a southwestern community. Discriminant analysis was used to weigh the importance of a variety of factors, with an 84% correct prediction of dropouts achieved. The three most important determinants were found to be student perception of occupational structure openness, perceived school racial discrimination, and the behavior and expectations of teachers. The author suggests alternatives to the present situation, including provision of enhanced motivational and community support for minority students and community demand that schools be held accountable for maintaining student motivation and attendance. Tables of data are appended. (Author/MK)