Should You Offer Tuition Reimbursement? The Pros and Cons

Tuition reimbursement is a benefit many companies offer to attract, retain, and upskill employees. Often appearing in the last line of a company job posting, tuition reimbursement is frequently overlooked. Many employers offer the benefit but see few staff members use it. Others are unsure whether it’s something they can afford or if it’s worthwhile. The case for tuition reimbursement is strong when the program is structured to meet the needs of the worker and the business. You’ll want to consider the plusses and minuses when deciding on providing the benefit, including how your plan will work.

Pros of tuition reimbursement

Tuition reimbursement can be an excellent investment for business. You may think it’s just to upskill workers to Master’s degree levels, but tuition reimbursement isn’t just for professionals anymore. Companies are leveraging tuition reimbursement programs at all levels. In 2018, Walmart began offering 100% tuition reimbursement to nearly all its 1.5 million workers if they sought a degree in business or supply chain. They recently expanded to include technology and health. In only 3 years, by 2021 the company reported over 50,000 of its staffers used the program. Target, Amazon, PepsiCo, McDonalds, and hundreds of American companies offer some form of educational benefit to attract and retain talent. Some start their offerings with GED/High School Equivalency program reimbursement for employees (and even their children), building from there up through bachelor’s degrees and beyond. Large companies, aware how challenging it can be to attract entry-level talent, know the promise of growth can increase their odds in the marketplace.

Attracting talent

In a survey of over 22,000 workers, EdAssist found 84% cited tuition assistance an important factor in the decision to join an organization.

In a survey of over 22,000 workers, EdAssist found 84% cited tuition assistance an important factor in the decision to join an organization. Tuition reimbursement programs message to potential hires that you’re interested in putting them on the payroll today, and growing their skill set to keep them on staff into the future. With many offers to choose from, tuition reimbursement may tip the scales in your favor when hiring.

Retaining talent

Tuition reimbursement can be a strong motivator for workers to stay with a company. That same EdAssist survey found 80% said tuition assistance made them more likely to stay with their employer: 85% said it was important to job satisfaction. At the very least, you’ll be retaining these workers for the duration of their time in the program, which can run from one semester to several years. If turnover is high, tuition assistance may be an excellent investment to reduce churn, even in the short term.

Developing talent

Upskilling workers used to be a luxury: in today’s competitive market it’s a necessity for business. Making sure your workforce stays current on technology is only the beginning. Market conditions change quickly: agile, educated staffers keep businesses successful. EdAssist found almost 60% of workers who used tuition reimbursement were offered a promotion or new opportunities within 2 years of completion.

Succession planning

Planning organizational growth requires planning for individual employee’s growth. Companies can create career trajectories for workers that align with the businesses’ future needs. Everyone wins: these pathways promote engagement, retention, and growth for the employees as well as guaranteed talent in place for the employer.

Tax benefits

There are financial incentives for business to offer tuition reimbursement, as well. The IRS will allow companies to deduct up to $5,250 from their taxable income every year for each employee they reimburse for qualified educational expenses.

Cons of tuition reimbursement

There are downsides to offering tuition reimbursements to employees, as well. Organizations should look at both sides of the benefit, before they determine if it’s right for them and their staff members.

Cost

Obviously there is a cost involved in providing the benefit. While many companies limit the maximum per year at $5,250 (the tax credit amount), they still need to pay the employee for the classes out-of-pocket. There may be a long-term gain in offering tuition reimbursement, however the upfront and ongoing costs can be prohibitive.

While many companies limit the maximum per year at $5,250 (the tax credit amount), they still need to pay the employee for the classes out-of-pocket.

Administration

As with every benefit, there will be paperwork. You’ll need to:

• Track whether the employee is eligible and their progress
• Make payments
• Maintain and file all necessary receipts and documents needed for your tax credits

These challenging to administer. They can be outsourced to a third-party, but that will carry an additional cost.

Participation

Historic participation in these programs is relatively low: some estimates put only 2 to 5% of eligible employees use tuition reimbursement. Another 43% are unaware if their employer offers the benefit. Promoting the program widely and working directly with employees they hope to upskill can increase participation.

Upskilling out the door

There’s a chance you’ll upskill your workers for another company’s benefit rather than your own. The EdAssist study found 93% of workers said they developed skills to grow within their organization, but that can make them more attractive to poaching or more willing to move on. You want to balance the value of retaining them throughout the program: or you can hedge your bets for after they complete it.

Setting parameters

If you decide to provide tuition reimbursement, you should set specific rules to participate and earn the benefit. Some of the most common parameters for programs include:

Eligibility

Some companies allow employees to start using the benefit on Day One of employment; others set a 6 month to one year tenure before eligibility. You determine what works best for your organization. Look for areas where you see churn — particularly those where workers are leaving for an advancement opportunity outside your company. These may be workers ripe for targeted growth and development.

Types of courses

As with the Walmart example, many companies limit the coursework allowed under their program to studies applicable to the work. If you manufacture widgets, you might not want to pay for a PhD in marine biology. You can predetermine what types of classes or degree programs will be eligible and what will not.

Payments

Generally employees apply for the program in advance. They are approved to receive payments after they’ve successfully completed the coursework. Others pay the employee up front with proof of registration and costs. Many companies develop relationships with local or online colleges and universities to make payments on the student’s behalf at registration or at completion of the coursework. You might consider working with local schools — particularly community colleges, technical, or trade schools — if you are looking to train for skilled work. Many brick and mortar and online schools provide discounts to employees or organizations.

Making the grade

Most companies tier their reimbursement payments based on passing the class at minimum, others reimburse based on grades. An employee may qualify for 100% reimbursement for classes they got an ‘A,’ 80% for a ‘B,’ 70% for a ‘C,’ 50% for a ‘D,’ and no payment for a failing grade. If the class is a pass/fail, 100% only if the employee passes the class.

Service requirements

In addition to a vesting period before becoming eligible, many companies require an employee to stay on staff for a period of time after completing the course or degree program. The required employment tenure after completion may be based on the expense of the coursework. For one class you may want require the employee remain for a short period — a few months, for example. For longer, more expensive investments, you may require they stay up to several years. Employees should be informed and agree (in writing) to these terms. Employees who leave before their term has expired may be required to repay some or all the cost of the program. As with other components of your overall health and wellness benefits, tuition reimbursement programs are good for the worker and the workplace. In addition to attracting and retaining talent, they provide learning opportunities for companies and their staff members. If you decide to move forward with tuition reimbursement, set a policy that outlines all the requirements for:

• Eligibility
• Payments
• Any post-education tenure requirements

Communicate the benefit widely and encourage employees to develop their skills today and for the future.