Leading employers know that education, skilling, and career mobility is key to their talent strategy.
Half of all spending on education for employees over the age of 25 comes from a select group of large companies. However, many smaller companies also offer education benefits. In fact, according to MarketWatch, about 90% of midsize or large employers offer tuition reimbursement.
Employer-provided educational assistance programs typically come in two forms. Tuition reimbursement programs pay employees back for the cost of tuition. Tuition assistance programs pay tuition directly to the school.
Tuition assistance and tuition reimbursement, albeit different payment models, have benefits for employers — including talent attraction and employee satisfaction.
But there are critical differences between the two that impact employee retention and program adoption from the frontline workforce.
Tuition reimbursement
Tuition reimbursement is the process by which an employer repays employees for tuition fees or other education costs.
Typically, the process for tuition reimbursement is as follows: An employee will pay for their education program initially. Upon completion, the employer reimburses the employee for all — or some — of the cost. The definition of completion differs by employer.
The process for tuition reimbursement is as follows: An employee will pay for their education program initially, and upon completion (the definition of which differs by employer), the employer reimburses the employee for all — or some — of the cost.
Employers can attach conditions to tuition reimbursement programs, including a capped funding amount, specific program limitations, and grade requirements.
The downside of this is that it requires an upfront sum from employees — often making higher education cost-prohibitive, particularly for frontline employees. In the course of our research, we found an example of a common tuition reimbursement program.
This employer offered the benefit broadly, and the average employee accrued $5 in debt for every $1 of reimbursement.
These high barriers to entry result in only an estimated 2% of employees actually using tuition reimbursement benefits. Plus, 84% of employees actually had a more negative view of their employer because the existing education benefits program created a poor experience.
Tuition reimbursement programs are also difficult to align with corporate strategy. Connecting reimbursed programs with skills and career pathways within the company remain a challenge.
Generally, tuition reimbursement is more often used by employees who can afford to pay upfront and wait for the money to be reimbursed.
Tuition assistance
Tuition assistance is when an employer pays for an employee's education upfront. In some cases, the employer pays tuition directly to the school. In other cases, the school may defer tuition payments until later.
Sometimes called direct tuition payment, tuition assistance differs from tuition reimbursement in that the employer’s contribution is paid upfront or deferred.
This process significantly reduces or eliminates the need for an employee to pay out of pocket. Like tuition reimbursement, employers can attach conditions to tuition assistance programs. Conditions could include type of program, designated schools, or required grade point average.
Examples of successful tuition assistance programs
When employers switch to tuition assistance programs, they often see significant increases in engagement.
For example, Target announced a tuition assistance program called “Dream to Be” in 2021 in partnership with Guild. As of April 2023, more than 25,000 employees have been approved for the program.
In an interview with HBR, Target's Chief Diversity and Inclusion officer Kiera Fernandez, “Target has offered a traditional tuition reimbursement program for more than two decades. Now, through our partnership with Guild to offer Dream to Be, team members can attend classes at more than 40 schools, colleges, and universities… with no out-of-pocket tuition costs.”
Similarly, Chipotle took their Cultivate Education tuition assistance program to new heights in 2019 when they agreed to fund 100% of tuition for 75 different degrees in technology and business. Not only did they increase job applications 46% by marketing the program, but “employees who take advantage of the company’s free degrees are 3.5X more likely to stay with the company and 7X more likely to move up into management," Chipotle's CFO Jack Hartung told CNBC.
“Employees who take advantage of the company’s free degrees are 3.5X more likely to stay with the company and 7X more likely to move up into management.”
Chipotle CFO Jack Hartung in an interview with CNBC
Which benefit is right for your business?
From an employer perspective, the benefits of offering either TR or TA include:
- Enhancing employer brand
- Driving talent acquisition
- Skilling employees
- Designing a workforce to align directly with corporate strategy
However, the major difference between TR and TA guides how and when employees have to pay for their education. For most of America’s frontline workforce, tuition assistance provides the financial stability necessary to take advantage of higher education.
