How to Offer Tuition Reimbursement Benefits: Advantages, Complications, and 7 Steps to Success
Tuition reimbursement benefits are a great way to support employees' professional growth. Here's how to offer them.
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There’s a face-off occurring between rising student debts and the need for employees to continuously upskill. How can employees afford to upgrade their skills and remain relevant in the talent marketplace when many are still making student loan repayments from college education completed years ago?
It’s only natural that companies step in to shoulder employee L&D costs, and tuition reimbursement benefits are an effective mechanism for doing so. This article covers everything you need to know about tuition reimbursement, including what it is, the benefits and potential challenges, and a step-by-step guide to incorporating it seamlessly into your benefits package.
Tuition reimbursement is a system where employers pay either part or the full amount of training costs following completion of a course. Sometimes, the employees will initially bear the cost of the education, for example, by paying cash or signing up for a student loan repayment program. However, it’s also possible for employers to pay educational institutions directly.
There are various structures and conditions that your reimbursement program may follow:
Though tuition reimbursements and stipends aim to foster employee growth and engagement, they operate on different principles.
In a competitive talent market, student loan reimbursements can resonate with a workforce burdened by educational debt. While employee advantages are immediately obvious, there's also a clear business case for companies interested in offering reimbursement.
93% of organizations are concerned about employee retention, according to LinkedIn’s Workplace Learning report. And the number one strategy they use to combat this challenge is “providing learning opportunities.”
The benefits you offer can be a deciding factor for top talent in today’s competitive talent acquisition and retention market. Forbes reports that the average student leaves school with $28,950 owed in student loan debt—92% toward federal loans and the remainder to private companies. This is a burden that weighs heavily on many professionals. Offering tuition reimbursement signals your commitment to employee wellbeing and continuous development and can attract the right talent.
There’s also a clear link between training and retention. TalentLMS and the Society of Human Resource Management (SHRMS)’s combined study reveals that 76% of employees agree they’re more likely to stay with a company that offers continuous training.
People leader Stefany Rowe encapsulates these points perfectly:
“I continually hear employees ask for more training to stay up on new technology, grow skills, or advance their skills. This requires an investment by the company, and generally, I’d argue a worthwhile one for those motivated employees. Tuition reimbursement programs often come with retention requirements, so you know someone will stick around. Plus, investing in employees creates more loyal, dedicated, and engaged employees. It shows you care.”
Under the provisions of the Internal Revenue Code Section 127, employers receive a deduction of up to $5,250 per employee for tuition reimbursements made via qualified education assistance programs. The scope of qualified EAP expenses encompasses:
The benefits apply for graduate or undergraduate studies, and there’s no requirement for the coursework to be directly related to the employee’s current role.
But the advantages aren’t one-sided. Education assistance programs are a tax-free benefit for employees, allowing up to $5,250 in reimbursements to be excluded from their taxable income and reflected on their W-2.
Companies that want to stay relevant need to fund continuous learning for their workers, and those that don’t will fall behind. A Dell report states that 85% of the jobs anticipated for 2030 have yet to exist, meaning that our employees are unprepared for the future of work. A Monster survey reveals that 58% of organizations are already struggling to find job candidates with the right skills, and 29% agree that the skills gap has widened since 2021.
This sounds bleak, but shouldering the costs of continuous learning and upskilling resources empowers employees to bridge the skills gap and remain relevant and valuable assets to the organization. By facilitating tuition reimbursements, you lay the foundation for a future-ready, skilled, and dynamic workforce. Loren Waldo, a seasoned Sales Leader, encapsulates this sentiment succinctly, stating:
“I have always been of the mindset that continuous learning leads to mutually beneficial outcomes.”
Despite the clear advantages of tuition reimbursement, a 2022 SHRM report reveals that only 48% of companies offer undergraduate or graduate tuition reimbursement programs as a benefit. So, why isn’t it more popular among employers? There are four key reasons:
Funding meaningful tuition programs can strain already limited resources, especially for smaller businesses. Some employers may need to prioritize essential benefits like medical coverage over tuition reimbursement.
Any reimbursement program is admin-heavy compared to stipends or a flexible spending account. Tuition reimbursement can be complex as it requires submitting course completion evidence, which adds administrative tasks for the employee and the benefits administration team. From drafting and communicating clear policies to managing paperwork and establishing eligibility criteria, the groundwork is extensive.
Tracking expenses and ensuring compliance with ever-evolving tax laws adds another layer of complexity. For many companies, especially those without a robust HR department, managing these intricacies can take time and effort.
Investing in employee development is always advisable, but it can be difficult for a student loan reimbursement employer to track their return on investment. While the employees’ newly acquired knowledge and skills are valuable, there’s no guarantee that these will align perfectly with the company’s immediate needs.
There’s also the age-old concern that employees might seek opportunities elsewhere once they’ve furthered their education.
Implementing a tuition reimbursement program may seem daunting, but it can be seamless and impactful when you follow the steps involved in our structured approach:
To establish a clear vision, start by pinpointing your main reasons for offering this benefit.
For example, you may want to bolster employee retention by providing enticing employee development opportunities. Or maybe your goal is to elevate the overall skill level within the organization to remain competitive and innovative in the market.
A great way to set concrete goals is by adopting the SMART framework, which stands for:
An example SMART goal could be to increase employee retention by 15% over the next two years by offering tuition reimbursement to all eligible employees, leading to enhanced job satisfaction and professional growth.
Before you roll out a tuition reimbursement program, make sure your employees genuinely want and plan to use this benefit. Collecting insights on employee sentiment allows you to align your tuition reimbursement program with your employees’ needs and aspirations.
You can use the following methods to collect employee input:
Next, you need to understand the financial implications of your tuition reimbursement program. Begin by determining the amount you’re willing and able to offer, ensuring a balance that aligns with your company’s financial health.
Benchmarking data allows you to analyze what rival companies or other industry players offer to gauge whether your proposed amount looks attractive to current or prospective employees. The 2023 Benepass Benefits Benchmarking Guide takes the legwork out of this step by providing up-to-date insights and comparisons to shape your financial decisions. Download the complete guide to dig into benefits trends and average stipend contributions by company size and industry.
Define who is eligible to participate in your tuition reimbursement plan and under what conditions. To create your eligibility criteria, ask yourself the following questions:
Addressing these questions allows you to set boundaries and create a program tailored to serve your company’s and your employees’ best interests.
For your program to be successful, your employees need to know it exists, how it will benefit them, and the mechanics of how it works. Maximize your tuition reimbursement program’s impact by implementing a robust communication plan. As Krishna Kumar, Founder and CEO of Simplilearn, puts it:
“Tuition reimbursement programs don’t necessarily result in a great outcome unless well implemented with a very clear identification of who can take what kind of programs.”
Some excellent ways to introduce and explain the program include:
With your tuition reimbursement plan in full swing, regular check-ins provide invaluable insights into how the program is received and where improvements might be needed.
Start by measuring participation rates. A high engagement level indicates the program resonates with the employees, while a lower rate might suggest that barriers exist.
Next, make sure employees clearly understand the program’s mechanics. You can gauge this through:
Benepass tip: Remember to act on the feedback you receive. Actively seeking and reacting to feedback ensures your tuition reimbursement program remains dynamic, relevant, and aligned with your workforce’s evolving needs.
Like any strategic people initiative, a tuition reimbursement program requires ongoing attention, evaluation, and refinement to remain relevant and effective.
Whether quarterly, bi-annually, or annually, measure the program’s success against the SMART goals set out in the initial stages to get a clear picture of where the program stands. If the metrics indicate improvements are needed, course-correct and monitor the impact of your changes.
A lifestyle spending account allows you to demonstrate your commitment to employee growth and wellbeing. Instead of taking a rigid, one-size-fits-all approach, you give your employees the freedom to spend their benefits on the training and development opportunities that truly matter to them.
Here’s how it works:
Ready to optimize your employee benefits package and boost professional development in one move? Book a free demo with Benepass or get in touch with email@example.com if you have any queries. Interested in exploring other types of benefit stipends? Check out our comprehensive guides below: