This is Not Your Father’s Tuition-Reimbursement Plan

By: | July 16, 2019 • 4 min read
Peter Cappelli is HRE’s Talent Management columnist and a fellow of the National Academy of Human Resources. He is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School of the University of Pennsylvania in Philadelphia. He can be emailed at hreletters@lrp.com.

No doubt, you’ve heard about the trend of employers paying for college now. Like many contemporary stories about business, it’s not true: The reality is that employer support for students attending college has been declining for some time. Fewer employers offer this benefit, and what they do offer is far less generous than what had been offered in the past.

What we’ve experienced is something that cognitive psychologists called the “availability heuristic,” prominent examples that distort our understanding over overall trends. What is driving the perception that more employers are helping to pay for college are splashy PR announcements from companies about plans to do so, Starbucks in particular (four years ago), Walmart and now Amazon.

A generation ago, the biggest companies in the country were oil companies and car companies. They all had tuition-reimbursement programs for their employees, and the programs were quite generous: You could get any degree you wanted and take it from most any college. Now, the biggest employers are retailers like Walmart, Amazon and Starbucks, who are also relatively new to the ranks of big employers.  The fact that they are adding benefits for employees is a good thing. In the era of shareholder maximization and business PR, though, there are a lot of strings attached to these programs that make them less generous than they appear, and they operate in ways that may well save the companies more money than is spent on them.

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The labor market is tight, but employers—nudged on by their investors—are loath to raise wages. So, they are looking at any way they can to attract and retain employees. A key point about tuition-assistance programs is that they are attractive to lots of people, but very few use them because it is really difficult to work a full-time job and do all the work required to go to college. We don’t know with any certainty how many employees actually take employers up on this offer, but it appears to be only about 6%. Of those, only a fraction will persist to a four-year degree. If 6% of Walmart’s 1.4 million employees used tuition assistance, that would be 84,000 student employees, but the company is only budgeting for a maximum of 5,000 graduates a year to get a $1,500 graduation bonus to help pay off loans, which tells you something.

The low take rate is not new. What is new is that these programs apply only to online degree programs that are quite different from traditional college and have nothing like the payoff of a regular college degree. The online programs are further limited to a handful of schools with which the companies have worked out special bulk-rate pricing. They are limited yet again by the majors one can study: At Walmart, it’s only business and supply-chain management, pretty narrow fields. The fact that these programs allow you to go to college comes with those very restrictive caveats and, if you want to study something else, they don’t help you.

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