To promote the development of compulsory education and educational equality in China, Two Exemptions and One Subsidy (TEOS) policy which initially aimed to help students from poor background finish their compulsory education was implemented by Chinese government step by step. This study examined the fact there were students in rural areas still dropping out under the policy of TEOS using a qualitative approach. Interviews were made and information was collected from different perspectives, dropouts, parents as well as teachers. The analysis from this study suggests that it was time to rethink grade retention removed in the revised compulsory education law. Furthermore, programs intended to help low achievers and parents in rural areas is suggested. Ultimately, a comprehensive evaluation should be adopted when assessing students and capabilities of teachers should be built to enhance the teaching in rural areas.