Tuition Reimbursement: How Do Employers Benefit from It?

It is common knowledge that student loan debt is a combined trillion-dollar concern for millions of Americans. However, that doesn’t deter individuals, young and old alike, from pursuing higher education. It does, however, give them cause to find lower-priced colleges and various means to pay for college without going into insurmountable debt. Grants, low-interest loans, work-study, and tuition reimbursement are all options to help cover college expenses.  



Individuals can capitalize on various forms of financial aid to pay for college by completing an annual FAFSA form. Through FAFSA, grants, low-interest loans, and other forms of payment to cover college are possible if applicants meet specific qualifications. However, a large portion of financial aid that’s offered is in the form of loans.

Though federal student loans generally bear a lower interest compared to conventional loans, the total amount of debt to pay for higher education can equate to hundreds of thousands of dollars for some students. Students who pursue graduate and doctorate degrees can easily find themselves owing six-figures when they finally begin their career.

Fortunately, many employers provide their employees with tuition reimbursement options to help cover a portion of the cost of college. In this blog post, we explore the fundamentals of tuition reimbursement programs along with the benefits of offering them for both employers and employees.

WHAT IS TUITION REIMBURSEMENT?



Tuition reimbursement is a program some employers offer their employees to help cover the cost of tuition. Employers who participate in a tuition reimbursement program are permitted to reimburse employees up to $5,250 for tuition costs on a tax-free basis.

Some employers might opt to reimburse employees for more than $5,250. However, the amount over $5,250 typically needs to be reported as taxable income by the employee. Employers might also decide to reimburse employees for other expenses, like course-related books, internet, and software required above and beyond straight tuition costs.

Most employers cap the amount that is reimbursable each year. A cap allows employers to ensure employees are not circumventing or scamming the system.

Another variable some employers use to calculate the amount of tuition reimbursement is based on the employee’s grade level. In other words, an employee will be reimbursed tuition on a scale dependent on the grade received in the course. An “A” would receive the highest reimbursement amount, a “B” the second-highest, and so on.

HOW DO TUITION REIMBURSEMENT PROGRAMS WORK?

Each employer has a policy on how tuition reimbursement works. In most instances, before an employee taking a course or entering a degree program, the employer must approve the course or program. Many employers pay employees back for out-of-pocket tuition costs once they have completed the coursework.

In rare instances, employers will pay for tuition costs up-front for the employee. If the employee fails to meet tuition reimbursement criteria, the employee will need to pay the employer back.

Some employers require employees to make a certain grade in the class or a certain GPA in a program to be eligible for payback. An employer could require that the schooling takes place at a specific type of college, such as one that is accredited, to meet tuition reimbursement requirements.

The type of coursework approved varies between employers. Some employers will only approve tuition reimbursement of coursework that aligns with the employee’s current position or the company’s field of work. For example, an accountant who wants to go back to school to get a master’s degree in accounting. Or an administrative assistant working for a financial advising firm wants to go back to school for a bachelor’s degree in finance.

Other employers might cover tuition reimbursement for coursework outside of an employee’s current work area to support them in achieving better work or a promotion.

Companies might pay the tuition reimbursement during their regular pay cycle so that it appears on the employee’s paycheck. Or a company might choose to cut a separate check for tuition reimbursement.

Another caveat some tuition reimbursement programs have is a clawback period. In other words, an employee is required to pay back all or a pro-rated portion of the tuition reimbursement money if their employment from the company is terminated within so many months after receiving the reimbursement. Twelve or 18 months are common clawback timeframes for tuition reimbursement.

HOW DO EMPLOYEES BENEFIT FROM TUITION REIMBURSEMENT PROGRAMS?

Aside from receiving support to cover tuition expenses to avoid going further into debt, employees can benefit from tuition reimbursement in other ways, as well. Tuition reimbursement helps employees:

• Build confidence: When increasing knowledge and abilities, improved confidence often follows.
• Increase their pay: Adding to one’s credentials often leads to promotions and salary increases.
• Feel healthier and happier: When employers take care of their employees, they often feel healthier and happier. 
• Reduce stress: Knowing they won’t have to bear the expense of tuition on their own can help unburden the financial stress an employee might feel.

HOW DO EMPLOYERS BENEFIT FROM OFFERING TUITION REIMBURSEMENT?

There are numerous benefits for employers that offer tuition reimbursement. Tuition reimbursement programs lead to:

• Smarter and more productive employees: Providing a means for employees to improve their skills and abilities leads to smarter and more productive employees.
• Improved competitive edge: Smarter and more productive employees can improve an organization’s competitive advantage.
• The ability to attract and retain top talent: Tuition reimbursement as part of a comprehensive benefits program helps to attract and retain top talent.
• Promoting from within: More educated and skilled employees allow organizations to promote from within vs. going externally to fill higher-level positions. This approach provides current employees with advancement opportunities and boosts employee morale.
• Tax breaks: Up to $5,250 of tuition reimbursement per employee per year is tax-deductible for the employer. 

COMPANIES THAT OFFER TUITION REIMBURSEMENT

Companies small and large alike offer tuition reimbursement programs. Tuition reimbursement is a relatively low-cost program to offer employees and provides a lot of benefits to both the employee and employer.



According to a report by Balance Careers, the following organizations offer tuition reimbursement programs:

• BP
• Anthem, Inc.
• AT&T
• Home Depot
• Proctor & Gamble
• Starbucks
• UPS
• Anthem, Inc.
• Verizon

Apple, PepsiCo, and Lowe’s also offer tuition assistance as part of their benefits platform.

ARE TUITION ASSISTANCE PROGRAMS WORTH IT TO EMPLOYERS?

According to Lumina Foundation, nearly 60% of employers offer some form of tuition reimbursement or assistance to employees. Furthermore, employers spend approximately $177 billion on their employees’ training and formal education. Nearly $28 billion of that $177 billion goes towards tuition benefits.

Surprisingly, Lumina reports that an average of only 2% to 5% of eligible employees utilizes employer tuition assistance programs. Further, 43% of adult workers are not aware their employers provide a tuition assistance program. The low utilization could be tied back to employers’ concerns of whether it is a good return on investment, and therefore, they do not advertise it. 

Lumina, with Accenture, conducted a series of five studies in 2017 to determine the return on investment of tuition reimbursement programs. The study included Discover Financial Services, Advocate Health Care, and Cigna. The focus of the study examined the “benefits of investing in tuition assistance by determining the differences in promotion, transfer, retention, and absenteeism rates for employees who did and did not participate” in tuition assistance programs. Factors such as job function and age were controlled to decrease their impact on the findings.

The results of the studies found that every employer had a positive ROI from tuition assistance programs. Cigna and Discover achieved “extraordinary results,” with 129% and 144% ROI, respectively.

Another concern for some employers is that their employees will leave if they get higher degrees or credentials. However, the Lumina and Accenture study found that turnover decreased for those who participated in tuition assistance programs. This was most evident for workers on the front line, where employers commonly see the highest attrition rates.

Workers were also more likely to move up in the organization after receiving tuition assistance. At Discover, workers were 21% more likely to be promoted, which is a significant number.

The evidence here shows that tuition reimbursement programs pay for themselves. From employee development to retention, as previously mentioned, employers benefit in several ways by offering tuition assistance programs, and even more so when ensuring the programs are utilized by employees.

DOES YOUR ORGANIZATION OFFER TUITION ASSISTANCE?

If your organization does not offer a tuition assistance program, it might be a good time to consider adding this benefit to your benefit offerings. The benefits are extensive for both your organization and your employees. It is also a relatively low-cost benefit to offer that provides a tax break at the end of the year.

KBI CAN HELP IDENTIFY AND IMPLEMENT OR IMPROVE TUITION ASSISTANCE PROGRAMS

If you're in the market to assess your current tuition assistance program or would like to implement a new one, KBI can help. Our team of expert brokers has been working with organizations for decades to identify the best benefits options to meet the organization's needs and employees. We will help your company determine the best opportunities that meet your organization's goals for the long-term.



Contact us today by submitting our online contact form or calling us at 408.366.8880. We look forward to working with you!