The Real Reason Employers Are Helping Workers Pay for College

It was when a loyal employee named Amber told him she was quitting that Philip Smith, the owner of a Chick-fil-A franchise in Weatherford, Texas, got cooking.

At a time when low unemployment is making it tough to find good workers, Amber said she was leaving for a job at Best Buy solely because of its tuition reimbursement benefit that would help her pay for a college degree.

“Her resignation letter told me one thing,” Smith said—that he, too, needed to offer an education benefit, which he quickly did, to reduce costly turnover and improve recruiting.

Scenarios like that, in workplaces all over the country, have resulted in a rush to add this kind of perk by employers ranging from JetBlue to the federal government, covering millions of Americans.

It’s a trend being pushed by the White House, publicized in news releases, and celebrated at conferences like the one at the National Press Club where Smith told his story about Amber, organized by two new groups called UpSkill America and Business Champions for Credential Completion.

The fine print has gotten less attention.

Benefits That Pay for Themselves

These education benefits help workers—including those who are part time and on the front lines of retail stores and fast-food restaurants—get high school diplomas and college degrees that could make them eligible for promotions. New research suggests they more than pay for themselves by reducing turnover. They also contribute to the national goal of boosting the number of Americans with college educations, progress toward which is behind schedule. And they’re a recruitment incentive at a time when “We’re Hiring” signs are popping up again in the windows of all kinds of businesses.

But unlike conventional tuition-reimbursement benefits, which many companies eliminated during the recession, the new programs increasingly limit students to taking courses from specific providers—often for-profit and online universities and colleges with poor graduation rates.

Related: Move over 401(k)s—this new perk is helping millennials pay off college loans

That’s because, to reverse dramatic enrollment declines, those for-profit education providers, along with some nonprofits, have been offering deep discounts to businesses in exchange for access to their workers.

Lowering the price to employers even further is the fact that many companies also now require their employees to apply for federal financial aid before the education benefits kick in, meaning taxpayers are helping underwrite these corporate efforts. And the portion that the companies do supply is largely tax-deductible.

“We’re very concerned both with the value of these benefits that lock employees into one provider of dubious quality education or one mode in which to get that education—usually an online portal—and the lack of voice workers have in negotiating these partnerships,” says Nicole Hochsprung, senior associate for higher education at the AFL-CIO affiliate the American Federation of Teachers.

In general, education benefits pay dividends for the employer and employee, according to new research that found the health insurer Cigna saved $1.29 in reduced turnover and recruiting costs for every $1 it spent on tuition reimbursement. Participants were 10% more likely to be promoted and made an average of 43% more, over three years, than colleagues who did not take advantage of the program. (The Cigna study was paid for by the Lumina Foundation, a funder of The Hechinger Report, which produced this story.)

Cigna’s plan allows employees to study anywhere they want and recently covered application, registration, testing, and graduation fees up to $5,250 a year for undergraduate courses—the maximum per worker for which an employer can claim a federal tax deduction—and up to $8,000 for graduate ones. So successful has it been that the company has now raised those ceilings to $10,000 and $12,000, respectively.

Related: Once high-flying private, for-profit universities seek turnaround strategies

But this most generous form of tuition reimbursement benefit is getting rarer. Chick-fil-A’s maximum education payout is $1,000 per employee, for example; Best Buy’s is $3,500 per calendar year for undergraduate courses, after any financial aid the worker gets from the government or other sources.

Making Up Lost Ground

And in spite of all the activity, American business remains more stingy with its education benefits than it was before the economic downturn, and is largely making up lost ground. The proportion of employers offering to pay toward their employees taking undergraduate courses dropped from 71% to 56 % in the last 10 years, the Society of Human Resource Management reports. For graduate courses, it declined from 67% to 52%.

“Companies really did slash and burn their professional development budgets,” says Bruce Elliott, the society’s manager of compensation and benefits. “Now we’re starting to see these things come back, but we’re seeing them come back in completely different ways.”

One of the reasons they’re rebounding is employer dissatisfaction with the graduates they’re getting from universities and colleges. In a Gallup survey, only 11% of business leaders strongly agreed that graduates were ready for work, compared with 96% of higher-education chief academic officers who said their institutions were very or somewhat effective at preparing students for jobs.

There’s also much more competition for employees in general. “It’s not just a charitable thing,” says Jaime Fall, director of UpSkill America. “Companies that hire frontline workers know that if they don’t offer benefits that are competitive, they’re going to lose out on workers who want to go to college.”

A Boon for For-Profit and Online Colleges

For their part, education providers badly need students, and they're giving lower rates to businesses to get them. Higher-education enrollment overall has fallen for nine semesters in a row. At for-profit companies such as the University of Phoenix, it has plummeted by an average 26% since its peak in 2010. Several have shut down.

Related: Some investors, universities see a return in fronting students’ tuition

“This is a way for the for-profits to maintain relevance. They’re under the gun,” says Howard Lurie, principal analyst at the education consulting firm Eduventures. “It’s an enrollment management solution for them.”

Making deals with employers means those for-profits that survive can get access to vast numbers of potential customers while saving money themselves on marketing and avoiding the scrutiny that comes with relying almost entirely on students who pay directly using government-subsidized loans and other financial aid.

“If we’re going to be able to adapt, we have to be nimble,” says Tracy Lorenz, president of Western International University, a division of the University of Phoenix parent, the Apollo Education Group. It was just picked to provide education services to employees of the human resource consulting firm Manpower. “I don’t have the luxury to be sitting on the sidelines and waiting for students to come,” Lorenz adds.

Neither of those companies would disclose detailed terms of their agreement. But other such pacts have included discounts from providers for employers. Employees of Fiat Chrysler dealers can take courses at Strayer University, for instance, under which the dealers pay much lower rates than Strayer usually charges. While Wal-Mart employees get a 15% break on their tuition to the private, for-profit American Public University System, part of that comes not from the retailer but from the university.

Nor is it only for-profit universities and colleges that are doing this. JetBlue has teamed up with the public online Thomas Edison State University to cover associate degrees and all but $3,500, minus federal financial aid, toward bachelor’s degrees. One of the most widely publicized education benefits, offered by Starbucks to its employees, limits them to taking courses from the online division of Arizona State University. In exchange, the university gives each Starbucks worker a “scholarship” equivalent to a 42% discount. The students also first have to apply for federal financial aid, which covers an average of about another 18% of the cost. Starbucks ends up paying less than half.

With far less attention, the U.S. Office of Personnel Management announced a deal in May with the nonprofit online Excelsior College to provide a 20% discount on undergraduate courses and 15% off graduate school for all civilian federal employees. That gives Excelsior access to more than a million potential students, plus their spouses or domestic partners. A government spokesman said Excelsior was chosen without a bidding process because this isn’t technically a contract; while some federal agencies provide tuition reimbursement, the deal connects employees directly with the college. They also can attend the online University of Maryland University College at a 25% discount or Champlain College at as much as 70% off.

“It’s a smart thing to do for us, being able to target this large audience,” says Jeanne Contardo, Excelsior’s vice president for regional operations in Washington.

Compromising Academic Quality?

The reliance on for-profit and online institutions raises concerns about results. More than one in four academic leaders say online education is inferior to the face-to-face kind, according to the Babson Survey Research Group, and fewer than 30% say their faculty accept its “value and legitimacy.” American Public University, meanwhile, has a below-average graduation rate of 31%, according to federal data; Western International's is 14%.

But online education is often one of the few options for working adults, allowing them to study when they have the time; many Excelsior students sign in between midnight and 2 a.m., the university reports. And those federal graduation statistics tend to put the for-profits at a disadvantage, since they track only full-time students, not the kind of part-time working adults whose tuition is being partly covered by employers.

Many of the education benefits also require that students make satisfactory academic progress, the definition of which varies by school but is usually at least a 2.0 grade-point average; so does federal financial aid.

The for-profits also focus more than conventional universities and colleges on practical workforce training. “It’s where our sweet spot is,” says Lorenz, of Western International, which specializes in business disciplines including information technology and human resources.

Adds Elliott, of the human resource society: “A business degree is a business degree is a business degree. The most important thing is that they go out and get the degree, and that it’s affordable. And that’s the overall intent of the programs we’re starting to see now.”

Besides, says Lurie, there’s so much on the line for the providers, “I don’t think they’re going to let this slide and deliver a substandard level of education.”

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It’s too early to gauge the effect of these new benefits, or how many employees will take advantage of them. In its first year, a McDonald’s program that helps pay for GEDs, English-language training, and college degrees attracted 5,037 of the company’s 440,000 U.S. employees, the chain reports. Cigna’s plan, with broad choice and high reimbursements, enrolls 5.8% of its 31,000 workers, according to the study of its effectiveness. Two years after it was launched, the Starbucks partnership with ASU has resulted in 5,200 of the company’s 135,000 U.S. employees signing up, a university spokesman said, or under 4%. The first 100 just graduated.

Back at Chick-fil-A in Weatherford, another of Smith’s employees, named Eddie, is using the new education benefit to get his certification from a community college in heating, ventilation, and air conditioning—skills Smith says Eddie practices at work.

“That benefits both of us. We have lower repairs and maintenance and Eddie has a new trade and new confidence, where if he was ever to leave Chick-fil-A he could still support his family,” Smith says. “It’s a win-win.”

This story was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Read more about higher education. Reproduction of this story is not permitted.