Pros and Cons of Offering Tuition Reimbursement to Your Employees

Posted October 4, 2018 by Justworks in Benefits and Perks
More and more employers seem to be offering tuition reimbursement programs. But does this employee benefit make sense for your business?

What do today’s employees want?

The answer, it seems, is benefits. A Glassdoor survey found that 4 out of 5 employees would prefer more benefits over a pay raise. In particular, with college costs soaring, tuition reimbursement as a benefit offered by employers is more and more appealing to employees.

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A survey by EdAssist found that half of millennials expected their employer to help pay for further education. The survey also found that 60% of respondents would take a job with professional development opportunities over one with regular pay raises. According to AARP, tuition reimbursement and training opportunities are also a boon for older workers who want to keep their skills current.

The upside of tuition reimbursement for employees is clear — but does it make sense for employers?

Related Article: When Should a Growing or Small Business Offer Employee Benefits?

Pros and Cons of Tuition Reimbursement Programs

For small- to medium-sized employers, offering tuition reimbursement may seem out of reach. But it may not be as expensive as you think. Tuition reimbursement programs are tax-deductible up to a $5,250 maximum per employee. Furthermore, an Accenture study found that the health insurance company Cigna saw a massive 129% return on investment for its tuition reimbursement program, thanks in part to lowered rates of employee turnover.

Tuition reimbursement programs are tax-deductible up to a $5,250 maximum per employee.

Providing work-related professional development at no or low cost to employees can be a win-win for the business as it keeps workers’ skills fresh and can prime them to take over management roles down the line. With unemployment rates at a rare low, keeping good talent is more important than ever. The Accenture study found that participants in Cigna’s tuition reimbursement program, which was capped at $5,250 for undergraduate programs and $8,000 for graduate programs, were 10% more likely to be promoted, 8% more likely to stay employed at Cigna, and 7.5% more likely to transfer within the company.

Some employers are also forging partnerships with higher ed institutions to keep costs manageable. For example, Starbucks’ much publicized tuition reimbursement plan, which provides a free 4-year degree to all full- and part-time employees, requires them to study through Arizona State University’s online program. Employees receive a scholarship from ASU that covers 42% of the cost of each credit, and can apply for other scholarships as well, with Starbucks paying the remainder, CNN reports.

Some higher ed institutions may still be able to offset costs for your workers through scholarships or other methods.

JetBlue announced a similar partnership in 2016 with Thomas Edison State University, a mostly online institution, to allow employees to earn bachelor’s degrees in business, information technology, liberal studies, aviation management, and aviation technology. In 2015, Fiat Chrysler partnered with the for-profit Strayer University, which offers both online and in-person courses, to provide dealership employees with free associate’s, bachelor’s, and master’s degrees in a number of different areas.

For small- to medium-sized employers, forging partnerships with local institutions is a path to consider. Your workforce may not have the bargaining power of, say, Starbucks’ nearly 240,000 employees, but some higher ed institutions may still be able to offset costs for your workers through scholarships or other methods.

Related Article: 15 Ways to Promote Workplace Wellness on a Budget

However, exercise caution when evaluating which universities to partner with. “The reliance on for-profit and online institutions raises concerns about results,” warns an article in Time Magazine. “More than one in four academic leaders say online education is inferior to the face-to-face kind, according to the Babson Survey Research Group, and fewer than 30% say their faculty accept its ‘value and legitimacy.’” The article reports that for-profit institutions, who have faced dramatic enrollment declines in recent years, are particularly incentivized to offer discounts to employers.

Factors to Consider

If you do decide to offer tuition reimbursement as a benefit, there are a number of factors to consider. Here are just a few questions to think about when drafting your company’s policy.

  • What will be the upward limit of tuition costs you reimburse? When will you reimburse them? (For example, Chrysler’s program offers tuition reimbursement upfront whereas Starbucks waits until the end of the semester.)
  • Which employees are eligible (e.g., types of workers, tenure, etc.)?
  • Will you allow employees to study any subject or limit them to certain work-related disciplines?
  • Will your program apply to all levels of education (e.g., are master’s degree programs eligible)?
  • Do employees have to study at a certain school or set of schools, or can they choose the program themselves?
  • What happens if employees leave the company in the middle of a course?
  • What happens if the desired outcome is not reached? For example, what if they drop a course without completing it or fail the course?

Related Article: What is Employee Expense Reimbursement and How Does it Work?

Ultimately, how you structure your program depends on the needs of your business and your employees. Tuition reimbursement programs can come in many shapes and forms. Consider starting small: perhaps you reimburse employees for one work-related course a year, subject to manager approval. This will give you at least an anecdotal sense of how excited your workers are for this opportunity, how many of them take advantage of it, and what effect, if any, it has on their work — and help determine whether it makes sense to continue or expand the benefit in the future.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.