Democratizing Tuition “Reimbursement”

Posted by Peter DeBellis, Julie Hiipakka on Febuary 13, 2020.

As organizations manage constant disruption, they need workers who are prepared—and equipped—to be continuous learners. But many organizations are not taking the necessary steps to offer the full spectrum of learning opportunities to their people.

In a previous blog titled “Learning as a reward?”, we noted that, in many organizations, learning and development opportunities beyond the most basic or required courses have historically been a de facto performance-based reward. But as the purpose of performance management evolves toward workforce growth and development1 in mature organizations—versus compensation and promotion—it stands to reason that employees should be afforded greater opportunity to pursue their own development more continuously and autonomously. If you agree, it may be time to take another look at the role of your organization’s tuition reimbursement program as an element of your overall approach to learning and development.

A prominent feature of US employer tuition reimbursement programs is that they work exactly as the name implies: via reimbursement. Employees pay educational expenses up front and then are later reimbursed by their employer, subject to any eligibility requirements (e.g., tenure, grades for education in question, relevance of program, performance status) and approvals. Some employers will preapprove a course or program of study to help set an employee’s mind at ease that the reimbursement will come through. But the fact is that employees are typically asked to pay the cost up front and then wait months until the courses and administrative processes have been completed before they receive the reimbursement.

The US economy is growing, unemployment is down, and the stock market is up, but that doesn’t necessarily mean the average employee has money on hand to pay for (even temporarily) their ongoing education. In fact, a 2018 report on the economic wellbeing of US households found that 40 percent of US adults would not be able to cover an unexpected expense of $400, more than 25 percent skipped necessary medical care in 2017, and more than 20 percent are unable to pay their monthly expenses in full.2 In this context, a program that asks employees to lay out as much as $5,250 (a common annual employer education program limit tied to tax-deductibility 3 or more in a calendar year may be inaccessible to large groups of workers. Such a program is more likely to be attractive to and used by more highly compensated employees—whom it could be argued have a less pressing need for such a program in the first place.

Given these (and other) potential challenges of a reimbursement model, many companies have decided to revisit their tuition program, and some have decided to move to a prepaid model, which requires little or no up-front, out-of-pocket investment by employees. Three organizations with large hourly workforces—McDonald’s4, Chipotle5, and Amazon6—are working directly with educational partners and institutions of higher learning to provide education assistance benefits at little or no cost to employees.

A prepaid program can reduce a company’s employee retention leverage as payouts happen before the course or program has been completed. (Some organizations implement clawback provisions that require employees who leave an organization within a certain timeframe to repay part or all the tuition assistance they have received.) Prepaid approaches can also present challenges for the enforcement of grade achievement or other common back-end program criteria. Finally, there’s a certain amount of legwork involved in establishing relationships with educational institutions and setting up prepaid tuition systems. However, some organizations have put in the work and made those trade-offs in exchange for enhanced, democratized education program participation and all the potential benefits that confers, such as retention, improved performance and engagement, and upskilling workers in lieu of acquiring them externally.7

The prevalence of prepaid tuition benefits and direct employer engagement with educational institutions is likely to expand in the future, particularly considering the findings of Deloitte’s 2019 Global Human Capital Trends survey. The top trend in this survey, learning in the flow of life, is grounded in the increasingly urgent need for organizations to help their workforces adapt to the changing world of work. Aligning with this need, 84 percent of survey respondents said they intended to increase their organization’s investment in reskilling, and almost as many leaned at least moderately toward retraining their existing workforce over hiring new talent.8

Workers continue to cite “opportunity to learn” as among their top reasons for selecting a job, even though 55 percent of the 2019 Trends survey respondents said that their organizations did not offer individuals any incentive for acquiring new skills.9 In a future where employees need and want to continuously learn, ongoing access to formal education—as well as learning in the flow of work—is a benefit to individuals and organizations that’s most likely worth the cost.

Peter DeBellis is a vice president and the total rewards research leader at BersinTM, Deloitte Consulting LLP.

Julie Hiipakka is a vice president and the learning research leader at Bersin™, Deloitte Consulting LLP.

1Performance Management Maturity Model, Kathi Enderes and Matt Deruntz, Bersin, Deloitte Consulting LLP, 2018.
2Report on the Economic Well-Being of U.S. Households in 2017, Board of Governors of the Federal Reserve System, May 2018. https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf
3https://www.govinfo.gov/content/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapB-partIII-sec127.pdf
4McDonald’s Triples Crew Tuition Assistance for Restaurant Employees, Lowers Eligibility Requirement to 90 Days, 2018. https://news.mcdonalds.com/news-releases/news-release-details/mcdonalds-triples-tuition-assistance-employees
5Chipotle Debuts Debt-Free Degrees For All Employees, 2019. https://newsroom.chipotle.com/2019-10-15-Chipotle-Debuts-Debt-Free-Degrees-For-All-Employees
6Amazon U.S. Benefits and Stock, Amazon Jobs, 2019. https://www.amazon.jobs/en/benefits/us-benefits-and-stock
7Why Companies Pay for College, The National Bureau of Economic Research, 2019 https://www.nber.org/digest/feb03/w9225.html
82019 Global Human Capital Trends: Learning in the Flow of Life, Deloitte LLP and Deloitte Insights, 2019. https://trendsapp.deloitte.com/reports/2019/global-human-capital-trends/learning-in-the-flow-of-life.html
9Ibid.

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