What is tuition reimbursement?

Tuition reimbursement, also known as an educational assistance program, offers employees money for taking college courses while employed with your company. With tuition reimbursement, employees typically pay for their approved coursework out of pocket and employers reimburse these costs upon course completion.

How much the employer decides to pay is up to the company’s policy. Some employers may also pay for additional expenses, such as books, pens, pencils and paper or a school laptop.

According to the IRS, eligible expenses also include qualified education loans. Currently, tuition reimbursement or education assistance programs can be used to pay principal and interest on an employee’s qualified education loans, tax-free. However, this option is only available for payments made after March 7, 2020, and under current law will be available until Dec 31, 2025. For more information, please visit the IRS website.

Conditions for tuition reimbursement

Some employers choose to provide tuition reimbursement under certain conditions.

Common conditions employees may have to meet include:

• Pursuing a specific program of study: Some employers will only reimburse tuition if the employee studies or majors in subjects related to their field. For instance, if a marketing coordinator went back to school, their employer would fund marketing courses only.
• Pricing for the courses: To maintain the budget, employers may only pay for courses that add up to a reasonable price. If the course prices go over the limit set in the company policy, the employee may be responsible for paying the remainder.
• Earning specific grades: An employer may only pay for tuition if the employee earns a minimum grade in the class. Some require students to earn a C or higher before paying for certain courses. Grade point rules vary among employers and it is generally useful to list this in the employee handbook.

Pros and cons of offering tuition reimbursements to employees

Below are some common advantages and disadvantages of offering tuition reimbursements:

Pros of tuition reimbursement

The tuition reimbursement employers offer to their staff can benefit both parties. Here are the pros of providing tuition reimbursement to your employees:

• Attract more candidates: Many candidates will choose a company over its competitors if it offers valuable perks, like tuition reimbursement, which can help them grow and advance in their careers.
• Enhance employees’ skill sets: Funding an employee’s tuition helps strengthen their skill set, which may allow them to advance to more senior roles, train other employees and possibly improve performance rates throughout your organization.
• Earn a potential tax break: Covering your employee’s tuition may provide a tax break per employee for your company, according to the IRS. The employee also receives a federal tax break up to the same amount.
• Increase employee engagement: Offering perks like tuition reimbursement can help improve employee engagement. It helps show your employees that you value them and support their development.
• Help Retain employees: Your employees may work for your company longer with tuition reimbursement.

Cons of employer tuition reimbursement

Here are the cons to consider of providing company tuition reimbursement to your employees:

• Burnout: Balancing work and courses can be challenging for some employees to manage successfully. Consider checking in on your employees to help ensure their continuing education courses aren’t affecting their productivity or focus. You may want to assist, such as, or guidance during this time.
• Cost: Depending on how much of your employees’ tuition you decide to fund, you could be investing a significant amount of your budget, which could cause financial difficulties. Run your reimbursement policy by your accounting and financial teams beforehand to ensure you stay within your budget.
• Lots of paperwork: As your employee proves they followed all of your policy regulations to receive reimbursement for their courses, they’ll typically have to submit documents, receipts and forms notifying you of this. It can be challenging and time-consuming to keep track of all this information and stay compliant.
• Dissatisfied employees: Another potential morale issue is employee dissatisfaction regarding not receiving a raise or promotion after earning a degree. If the new degree qualifies them for a more challenging and higher-paid position, they might feel dissatisfied staying in their current position. To help avoid employee dissatisfaction with tuition reimbursement, consider communicating the hard and soft skill requirements for each of your open roles so employees know that they are not guaranteed a promotion or raise.

Things to consider when setting up a tuition reimbursement program

Deciding on key elements of tuition reimbursement programs for your employees helps you shape your program. Consider the following:

Budget limitations

Before implementing a tuition reimbursement plan, first, decide if it fits within your budget and how much you can afford to reimburse. Meet with your financial and accounting teams to set a reasonable budget for the program that benefits the employee and keeps you financially stable.

Work with your finance team to develop a set amount that you can afford for each employee. While not all employees will take advantage of the program, ensure you have the budget if more employees decide to participate in the program.

Eligible expenses

Consider which expenses you’ll cover, which might include tuition, fees, textbooks and other necessary educational supplies. If you’d like to contribute more to your employees’ education, consider reimbursing additional materials they’ll need for courses. This might also include expenses like pencils, calculators, pens, internet connection and computer equipment.

Course limit maximum

Decide if you want to limit the number of courses you’ll cover for employees each semester. Restricting the number of courses helps you stick to your budget. The limit can also help prevent employees from becoming overwhelmed with too much work.

Course restrictions

Consider what type of courses you’ll cover. This makes the coursework mutually beneficial because employees can apply what they learn to their work.

Creating a tuition reimbursement policy

As you implement this program, make sure you create a policy within your employee handbook. This policy clearly states the cost you’ll cover for courses, how and when you’ll provide reimbursement, which courses employees can take and any other information that affects your tuition reimbursement initiative. Ensure open communication with your staff to answer any questions they may have about the program.

Reimbursing your employees’ tuition is a great way to reward their drive to go back to school and enhance their skill set. However, there are several factors to bear in mind, such as your own budget limitations, whether the employee has time to take on the extra work and whether the course has any restrictions.