Overview of Tuition Reimbursement

In a competitive labor market, tuition reimbursement programs are a common and effective way for employers to invest in their workforce. By reimbursing employees for eligible education expenses, companies benefit from increased employee participation as well as the skills learned by employees. This reimbursement also helps employees defray the high cost of education.

How does tuition reimbursement work?

As the name suggests, employees pay their tuition fees and then the company reimburses them for that cost. After the course is completed, employees usually send a receipt to their employer, who then provides the payment.

This can be done in a number of ways, with different employers making different specifications. Many employers limit what types of courses are eligible for tuition reimbursement, such as only covering courses that lead to a certain certificate or degree, or covering training and other education directly related to the employee's field of work.

Most companies limit the amount each employee can receive per year or semester, which is usually around the tax-deductible limit of $5,250. Some companies require employees to earn a certain grade in a course to receive their reimbursement, while others refund employees regardless of their performance.

It is also common for smaller employers to partner with specific colleges and universities in the area and reimburse tuition only to those schools. However, most nationwide employers reimburse courses at any applicable school. Other employers expect employees to sign a contract stating they will remain with the company for a certain number of years or must return their tuition reimbursement.

Is tuition reimbursement a good idea?

Tuition reimbursement offers many benefits to both companies and employees. For employees, it helps open the doors to cost-prohibitive education, and for employers, it's an investment in retention and succession planning.

One survey found that  93 percent of participants  say tuition assistance helped them develop the skills they needed to advance in their current jobs. But working toward a certification or degree does more than make employees more competent in their current roles; continuing education also advances their career paths and prepares them for higher income opportunities and additional growth.

Another benefit that employers receive from tuition reimbursement is building an educated and engaged workforce. With the world of work changing so rapidly, developing employees who are up to date with current research and practices can become a competitive advantage for growth and innovation. Investing in employees results in significant savings in recruiting costs and can be a powerful tool for attracting new employees. Higher education can also train employees for managerial roles and   help companies retain talent, reduce turnover and reduce retention costs.

As an added bonus, tuition reimbursement brings tax benefits for both parties. Employers receive a tax break on tuition expenses up to $5,250 per employee.

Is tuition reimbursement the same as a scholarship?

No. Scholarships are typically merit or need-based, while tuition reimbursement programs are available to all eligible employees.

Tuition reimbursement also does not prevent employees  from applying for  other forms of federal aid, including loans, grants, and scholarships . However, employees must indicate the amount of their tuition reimbursement on their FAFSA form.

What is the difference between tuition assistance and tuition reimbursement?

The main difference between the two is that reimbursement programs pay employees their tuition fees after they complete the course, while assistance programs pay part or all of the tuition fees upfront.

Of the two options, tuition reimbursement is widely considered the safer option for employers because they don't have to pay if an employee doesn't complete the course. However, for some employees, upfront assistance may be more appealing than waiting until the course is completed to receive payment.

How do companies seek reimbursement of tuition fees?

If an employee leaves the company soon after completing his course or takes advantage of his new education for a better position in another company, the employer can ask for the tuition reimbursement back.

In such cases, the company may require the employee to pay the tuition reimbursement before leaving the company. Since these tuition programs require a signed contract, legal action may be taken against the employee if he leaves the company without paying his reimbursement.