The coffee chain Starbucks drew a lot of attention recently when it announced that it would cover the cost of undergraduate college tuition for its employees. While the benefit is welcomed by many employees, the tuition-assistance program actually will cover the full cost of attending only the online program of Arizona State University (ASU) and only during junior and senior years. In freshman and sophomore years, Starbucks employees are eligible only for discounts from ASU that will lower the cost of attending its well-regarded online program by about 22%. (Starbucks employees who earn college credits at other institutions might be able to transfer into ASU’s online program as juniors or seniors.) In other words, this tuition-assistance program, like many others, is not everything it may seem to be. Other potential pitfalls with such programs…
A portion of the tuition assistance could be considered taxable income by the IRS. Employer-provided tuition aid generally is tax-free up to only $5,250 per year. Assistance above this level usually is taxed as income.
Tuition-assistance programs often reimburse employees after the fact rather than pay tuition bills up front. Starbucks reimburses its eligible employees only after they have earned 21 credits, roughly seven courses.
Employer tuition-assistance programs can reduce students’ eligibility for need-based financial aid because they have to work while they go to school.
College-tuition programs often bind employees to their current employer. Employers who offer these programs might require participating employees to continue to work for the company, perhaps for one year after graduation for each year of education.