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Dear Workforce How Do We Measure the ROI of Tuition-Reimbursement Programs

Dear ROI:

As a relatively unregulated benefit, tuition-assistance programs vary widely among employers. Dr. Faith Ivery, president of Scottsdale, Arizona-based Educational Advisory Services, which manages tuition plans for employers, says a sample makeup consists of:

  • A yearly cap of $5,000 to $10,000
  • A requirement that the work be related to the employee’s job or the company’s business
  • A payment of 100 percent for an A, 90 percent for a B, 80 percent for a C and nothing for grades lower than C

Some employers pay more for graduate courses than for undergraduate courses, and many require that courses be part of a degree program. Still others have a lifetime cap (such as $25,000) rather than an annual limit.

Because it’s easier to administer–and not because it’s necessarily the best amount–the most common annual cap is $5,250. Under Section 127 of the U.S. Tax Code, anything up to that amount is tax-free. (In some cases, amounts over $5,250 may be tax-free; ask your tax attorney.)

There is precious little data on the return on corporate education investment. A study by the American Society for Training and Development, sponsored by Motorola, includes all educational spending, from in-house training to university degree programs. It shows that every dollar invested in employee education results in a $10 productivity gain.

Shockingly few (only about 5 percent) of the companies surveyed measure the return on investment of their tuition-reimbursement programs. Those that measure anything look at retention, recruitment, productivity, employee performance and promotability. The overwhelming majority of those surveyed see a strong correlation between tuition-assistance expenditures and each of these measures.

Sadly, most employers place their tuition plan under the benefits department as a program to be administered, rather than treating it as a strategic operation to be managed. In Dr. Ivery’s view, the real benefit to the employer is the knowledge that employees gain and contribute to the company’s success. As with any other investment, it makes sense to manage costs but not to cut corners.

To manage your outlay while supporting employees’ progress toward degree programs, consider what some wise employers do.

  • See how internal training courses can be applied toward degree credit.
  • Pay for CLEP exams, whereby students earn course credits toward their degree by demonstrating proficiency on an exam.
  • Encourage students to enroll in accelerated degree programs, which offer the same content as traditional courses in far less time. This way, the learning comes back to the company almost immediately.
  • Consider outsourcing the management of your plan to a qualified provider. They can often save the employer money with sound advice to both employers and student/employees.
  • Consider allowing a local college or university to utilize some of your office/plant space for an evening program in exchange for free tuition for your employees.

SOURCE: Bill Catlette and Richard Hadden, co-authors, Contented Cows Give Better Milk, www.ContentedCows.com, July 24, 2003.

LEARN MORE: See aSample Tuition Reimbursement Policy. Also try Eduventures as well as the IFEBP.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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