Almost 16,000 students in 18 large further education colleges were assessed last year by the Government's Basic Skills Agency. One in three was identified as having reading and writing skills below the standard needed for the courses they had embarked on.
Reading support was given to a sample group of about 4,500 of these students. Their retention rates were compared with those who were not helped.
Three out of four students who had support completed their courses or the first year of their course successfully. This compared with just half of those who had no help.
Support given to the students varied considerably among colleges, with many receiving nine times as much as others. But in all cases, literacy support reduced the number who dropped out.
Receiving basic skills training also had raised the standards achieved, according to the researchers. They identified a range of barriers to success - the stigma attached to having poor reading and writing skills and the lack of recognition of the level of skills needed for different courses.
The researchers concluded that assessment of basic skills should be offered to all new students, whether full-time or part-time. They also called for more research to identify the barriers which put students off seeking help.
Despite the considerable advances in college systems for compiling individual student records - a scheme that is now required of all colleges seeking Further Education Funding Council cash - more reliable systems of data collection are still needed, they concluded.
But initial assessment is not enough. All colleges should "track" students assessed as requiring basic skills support throughout their college careers, the report says.
Alan Wells, director of the Basic Skills Agency, said: "Of course, it would be better if no young people left school with poor reading and writing.
"However, we have a long way to go before reaching that point."
"We need to help people who have left school but still want to go to college. If colleges do provide help, more of this vulnerable group stay and end-up finishing the course."
The research has considerable implications for the cash colleges receive, since they are penalised far more heavily than schools for each student who drops out. The issue of improved retention rates was also highlighted in Helena Kennedy's recent report on widening participation. This said that disadvantaged and vulnerable students were the most likely to drop out.
Mr Wells said: "It is worrying that on average less than half of the students assessed as needing help with literacy actually got it. If we can increase the numbers getting help then clearly the drop-out rate would be reduced dramatically."
But responsibility did not rest with the colleges alone, he insisted. "It is not just that some colleges don't provide the help. Some students just don't take advantage of the help available."
He called for a "learning contract" between colleges and students, to spell out the support colleges should give and the onus on the students to take it.
"This new right and responsibility would do a lot to reduce expensive waste through drop-out and non-completion," said Mr Wells.