Benefits Strategy

What is a Tuition Reimbursement & Case Study on How it Helps Employers

Written by Kate

Technology is advancing and job markets are evolving rapidly. To stay ahead of the curve, employees must constantly upgrade their knowledge and skill sets to keep up with the rapid globalization and competitiveness. However, upskilling and reskilling may require returning to school, and that has its challenges. That’s why employers are using fringe benefits to deal with these challenges.

With tuition fees skyrocketing and budgets becoming tighter, mature students are forced to take on extra work or debt-finance their education. According to Forbes, over 50% of college students graduate with over $30,000 in student loan debt.

Fortunately, employers are stepping in and alleviating this stress with tuition assistance programs. This assistance can range from paying a portion of college tuition to full tuition reimbursement. Even though it might not be the most affordable perk in your benefits package, tuition reimbursement has a high ROI.

Like other benefits, it can help you improve your corporate image, attract and retain high-quality employees, and increase productivity.

Does that sound like something you’d want? Let’s delve deeper and understand what tuition reimbursement programs are, how they work, why employers offer them, and how you can implement them in your organization.

 Read on to learn more about this topic! Click on the sections below to jump right to your specific question.

What is a Tuition Reimbursement?

Tuition reimbursement is an employee benefit that helps reduce the financial burden of continuing education. As the term implies, tuition reimbursement allows employees to pay off part or all of school expenses through company funds.

Typically, an employee pays for their education upfront and then claims the money from the employer afterward. This could be for a bachelor’s or a master’s degree. Section 127 of the tax code stipulates that employers can pay up to $5,250 and $10,500 per year for undergraduate and graduate degrees, respectively.

Few employers want to hire someone without sufficient education, so this is a great way to help employees advance their careers. It also boosts diversity and inclusion.

Here are a few other popular reimbursements and company perks that employers offer:

Some insurance companies offer their own wellness reimbursement program for employers as well, such as the Cigna gym reimbursement program, humana wellness program, or the Go365 program by Humana.

How Many Employees Actually Use Tuition Reimbursement?

You’d think employed workers would be jumping at the chance to get quality education and improve their career prospects without having to choose between school and work. However, available data suggests that not enough employees benefit from employers’ education and training programs.

According to a study by the Lumina Foundation, employers spend about $28 billion on tuition benefits annually, but only 2-5% of employees utilize them. Worse still, 43% of workers do not even know if their employers offer these benefits!

For the most part, the low participation rates can be blamed on employers. Some don’t inform employees about it for fear more employees will utilize them and increase costs. Others are worried they’ll develop talent and then lose these employees to competition.

Even in companies where employers proactively encourage employees to utilize this benefit, other factors come into play:

  • Most companies require an employee to stay on for a specified timeframe or pay back the money the employer spent on their tuition.
  • Most programs aren’t prepaid, so the student must still raise money first without being sure they will recoup the costs.
  • Some tuition reimbursement programs are limited to specific majors in select colleges.

How Does Tuition Reimbursement Work With Student Loans?

College tuition is expensive, so some degree programs may need more financial resources than a tuition reimbursement program covers. That may mean seeking more financial aid, like federal student loans. The good news is that tuition reimbursement does not always lock students out of other financial aid.

However, it may affect need-based financial aid status and limit how much the employee is awarded. In many cases, that means getting lesser student loans than they’d have gotten if they didn’t have tuition reimbursement.

Note: Students must report how much they get in tuition reimbursement from their employer in their application for student loans.

How Does Tuition Reimbursement Work for Jobs?

Renowned public speaker Brain Tracy famously said, “Continuous learning is the minimum requirement for success in any field.” Tuition reimbursement helps employees in three main ways:

  • Sets them up for raises and promotions – More education usually means more money. In most professions earning a master’s degree increases the holder’s salary by about 20%. It can also unlock a new professional level and make the holder eligible for promotions.
  • Safeguards the future – A high-quality degree program equips learners with diverse and relevant skills that help them navigate the changing job market. It also makes them more marketable if their current position becomes obsolete or if they want to switch careers to stay ahead of the curve. 
  • Gives employees added credibility – Higher education programs equip students with specialized skills and expertise. That makes employees more competitive and improves their social standing among their peers. 

Why Should Companies offer Tuition Reimbursement?

“There ain’t no such thing as a free lunch.” Not in this economy, at least. There are economic strings attached to tuition reimbursement. Here’s how employers cash in:

Boosts recruitment and retention

Hiring in today’s complex labor market is no longer business as usual. For one, the unemployment rate is at an all-time low, and there are possibly more jobs available than job seekers. That means the average job seeker has more options, so you’ll have to offer them more than the standard salary and benefits package.

Tuition reimbursement gives you a leg up in the talent war, saving you recruitment costs and unnecessary employee turnover. Studies show TRPs save between $1 and $1.29 in talent management for every dollar spent, depending on design and implementation.

These statistics from a recent EdAssist study to support that:                 

  1. 93% of employees use their company’s tuition assistance program to boost their employability in higher positions.
  2. 84% of employees chose a job because of  tuition reimbursement
  3. 71% of respondents value tuition reimbursement more than other benefits except for healthcare.
  4. 8 in 10 employees who use a TRP are more likely to stay with their employer, regardless of any policy requiring them to stay.

Enhances employee engagement

Bringing in top talent is one thing. Keeping them engaged is another, and employers should ensure they don’t drop the ball. According to Gallup, disengaged workers cost $7.8 trillion in lost productivity! Moreover, the report indicates financial incentives may not be enough to tackle this problem.

Per multiple studies, improving employee engagement simply requires deliberate effort on the employers’ part to meet employee needs. What better way of achieving that than helping them develop their skills?

Helping employees meet their educational goals tells them you value their well-being, not just what they help you achieve. It also equips them to adapt to the changing workplace without losing momentum. This, in turn, increases their motivation and builds a good foundation for employee engagement.

Increases productivity

Tuition reimbursement enables employees to upskill and reskill. That means the employee can easily handle more tasks and fill any upcoming roles, making them more productive in the short and long term.

As digitization continues, new job opportunities are coming up. A study by the Institute for the Future (IFTF) predicts that over 85% of popular jobs in 2030 are yet to be invented. That means employers must equip their teams for the future or risk incurring millions of dollars to hire new workers. On the flip side, technology has already destroyed millions of jobs and will continue to do so.

In this case, offering tuition reimbursement can be a win-win for both employers and employees. Firstly, it helps the employees retain jobs by reskilling them. Secondly, it allows employers to save training costs and keep the team intact. Thirdly, it creates happier employees, which boosts morale and productivity.

Are There Eligibility Requirements to Participate in Tuition Reimbursement Programs?

Tuition reimbursement is a voluntary benefit employers give their employees. That means the employer can customize the offering as they see fit. For example, some employers only reimburse tuition costs, while others cover additional expenses like textbooks, pens, school laptops, etc.

Employers can also set the conditions employees must meet to be eligible for the tuition reimbursement program. Such conditions can include:

  • Program of study – Most employers only reimburse tuition on specific courses that directly affect employee performance.
  • Course pricing – Employers can pay up to $5,250 annually for undergraduate degrees, but each employer can choose how much they will cover.
  • Student’s grades – Some tuition reimbursement programs require a student to achieve a specific grade. These can then be broken down into categories. E.g., a student who scores an A gets full tuition reimbursement. One with a B receives 80% reimbursement, etc.
  • Service timeframe – Employers expect to gain an ROI within a reasonable timeframe. They may thus require an employee to stay with the company for a given period after completing their studies.

Do Employers Get a Tax Break for Tuition Reimbursement?

Tuition reimbursement offers tax savings to employers and participating employees. Under federal tax law, this benefit is a qualified educational assistance program, so the reimbursements are omitted from the employee’s taxable income.

Generally, an employer gets a tax break for tuition reimbursement if they meet specific requirements:

  1. They have a written tuition reimbursement plan.
  2. The plan may not offer other benefits that can be selected instead of education.
  3. Assistance does not exceed $5,250 per calendar year for all employers if the employee has more than one.
  4. The plan should not favor highly compensated employees.

Case Study of a Company that Offers Tuition Reimbursement

Many companies offer some form of tuition assistance, including tuition reimbursement. Discover Financial Services, a leading payments services company, is an excellent example of how successful these programs can be.

Between 2010 and 2013, Discover invested $7.4M in its tuition reimbursement program. 558 frontline call center agents (Agents) and 552 corporate function workforce (Non-Agents) participated in Discover’s TRP during this period.

At the end of this period:

  • The TRP produced 144% ROI, confirming talent investment does indeed pay off.
  • It had a 4-year utilization rate of 3.5% (2.5% for Agents, 6.6% for Non-Agents)
  • For every $1 spent on the TRP, Discover got back its original investment and avoided $1.44 in talent management costs. This translated to $10.9 M in net savings annually
  •  21% of participants were promoted, and 9% transferred
  • Employee retention increased by 0.5%
  • Absenteeism reduced by 4 days per month among participating employees
  • Annual wage increased by 46% for participants

“This study helped prove what we already knew: Investing in our employees helps our customers, helps the community, and provides significant business value.” – Jon Kaplan, Chief Learning Officer, Discover

Before conducting the study, Discover employees were required to complete one year of full-time employment to qualify for TRP. This is no longer needed; employees can apply for the program on day one of their employment with Discover.

Additionally, Discover has created diverse education assistance programs that help employees fund their post-secondary education from accredited colleges and universities. Their tuition assistance and reimbursement program offers up to $2,500, $5,250, and $10,000 for associate, bachelor’s, and graduate degrees, respectively.

Over 2,000 employees have utilized these programs since 2018, costing the company $20M+ in tuition. It has also increased retention rates by 1.4x and made participants twice as likely to be promoted.

If you would like to learn more about fringe benefits, check out this guide on the different types of fringe benefits you can offer. If you are interested in exploring ways to set up a fringe benefit offering at your company, we would love to help you! Feel free to schedule some time with our experienced benefits experts at your convenience.

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