The Employer-Employee Benefit of Providing Pathways to Debt-Free Education

Economic bubbles come and go, with everything from stock values to housing and food prices rising and falling based on a complex set of factors. But one area that seems impervious to economic forces is college education costs, which have tracked a dependable upward arc for decades.

It’s a situation that has radically changed higher education in the United States. Parents in middle-class and underprivileged homes can only afford a much smaller percentage of college costs if they can afford any at all. Students without other financial resources have turned to loans to fund their education. The result: more than $1.75 trillion in student loan debt, according to the Educational Data Initiative (EDI).

President Joe Biden recently issued an executive order that forgives up to $20,000 in student loans for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients. It’s a positive step, but EDI reports an average federal student loan debt of $37,667, with the total average balance (including private loans) projected as high as $40,274.

Business leaders have the opportunity to provide help in this area in a way that benefits both themselves and their employees. Education assistance programs, including debt reimbursement and tuition sponsorships, rank high on the list of what job hunters look for in potential employers. This is especially true of those that offer debt-free college degrees.

What Are Educational Assistance Programs?

An organization offers an educational assistance program as part of its employee benefits package. It involves the employer paying for an employee’s educational expenses in a variety of ways. They include direct payments of tuition, scholarship grants or offering student loan repayment assistance.

If created in compliance with regulations, the amount of money used toward educational expenses is tax deductible for the employer and not considered taxable income for the employee.

Employers create education assistance programs to recruit, train and retain valuable employees. Given the student debt load carried by many workers, it’s a benefit that is attractive for both job seekers and current employees. These programs also help employers maintain an educated and skilled workforce, giving them an advantage in a competitive business environment.

How Do Education Assistance Programs Promote Equity?

An education assistance program provides potential benefits to all employees. But it can especially help those from underrepresented groups who often incur higher levels of debt than others.

A recent CNBC/Acorn survey conducted by Momentive found that 24% of Black adults say they have student loan debt. That’s compared to 15% of Hispanic, 14% of white and 11% of Asian adults.

There are gender disparities, as well. The survey found that women (19%) are more likely than men (11%) to have student loan debt. More Black women (31% and white women (17%) reported having student loan debt than white or Black men (11% and 15%, respectively).

These numbers clearly show that educational benefits can support equity, much in the way benefits programs can lead to higher levels of health equity. They provide support for those who earned an education despite having fewer financial resources than others.

Types of Benefits Offered by Education Assistance Programs

Employers have many options when setting up an education assistance program. Because tax laws are in constant flux and the creation of a program involves many different areas of regulation, the Society for Human Resource Management (SHRM) recommends that organizations consult with legal and tax experts when establishing education assistance programs.

In general, these programs can help pay for an employee’s current and ongoing college tuition costs, fund annual grants of a specific amount and support students in paying off debt for a degree they’ve already earned.

More companies now offer debt-free college degrees in which they will pay 100% of tuition costs. They include Amazon, Qualcomm, and Starbucks (for those who attend Arizona State University). Other companies offer debt-free education programs when employees attend partner schools or seek certain degrees, including Disney, Lowe’s and Target.

Beyond choosing the form of assistance, SHRM offers a list of questions employers should consider when creating an education assistance program.

  • Eligibility. Is the program available to all employees or only to certain classes or levels of employees? Will the company extend the benefits to spouses and dependents?
  • Tax structure. Different programs offer different tax advantages. For example, a business may want to set up a charitable trust to award scholarships.
  • Partnership. In some cases, an organization may want to set up a partnership with a specific academic institution that will offer employees cost reductions when earning a degree.
  • Accreditation rules. Employers may want to establish levels of accreditation that schools must meet in order for employees to seek financial support for attending classes.
  • Types of education. Organizations must decide what type of education they will assist employees in attaining, including the level of degree (undergraduate vs. graduate, for example), professional certificates, professional development, and more.
  • Amount of support. A key aspect of any program is establishing the amount of support that will be made available.

Why Employers Should Care About Educational Assistance

Employees benefit financially from education assistance programs beyond the direct support in paying for tuition. The Harvard Business Review reports that employees in debt-free education programs are rewarded with a 2.4 times higher wage increase relative to non-students in their first year of student enrollment. Also, 80% are more likely to earn a promotion.

But employers benefit as well. As the CNBC survey showed, establishing an education assistance program can potentially help those from underprivileged communities who are forever playing financial “catch up” with more privileged and affluent peers.

By moving away from only providing capped tuition reimbursement programs, employers can provide better support for frontline and lower-income workers who may not have the money needed to pay for tuition, according to HBR.

They also serve as a powerful tool to attract talented workers, as 48% of all workers told Gallup they would switch to a new employee if they offered skills training. Companies that offer debt-free education report a turnover rate that is 2.5 times lower than average. In one example shared by HBR, after Chipotle expanded its education program to include debt-free college degrees, those who entered the program were 350% more likely to stay at Chipotle. They also were seven times more likely to move up into management.

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