From a financial standpoint, most consider a college degree a necessary evil. Whether the students pursuing one can actually afford it or not, it’s the piece of paper that lands most of them a slot on your calendar.

For those who want to return to school to acquire new skills, certifications, or a Master’s degree, it’s a game of wondering how much student debt they’ll have to add to their existing pile.

Tuition reimbursement benefits save your employees money. You can use them to build a more engaged and productive workforce in the long run.

What is employee tuition reimbursement?

Employee tuition reimbursement is a company-sponsored benefit that covers some or all of the costs associated with an employee’s college coursework. In a reimbursement program, the employee pays for their courses upfront, and the employer pays back either a portion or the full cost upon completion.

If you’re wondering how it works, it’s simple:

1. You decide on the approved programs (or give your employees free rein).
2. They pay their tuition at the beginning of the term.
3. They stay with your company for the course duration.
4. They submit their grades and receipts.
5. You process the reimbursement through payroll.

A recent report from Willis Tower Watson found that 80% of large companies provide tuition reimbursement as part of their benefits package.

Tuition assistance programs vs. tuition reimbursement programs

You know how every square is a rectangle, but not every rectangle is a square? In this case, tuition assistance is the rectangle, and tuition reimbursement is the square.

Tuition assistance refers to any type of employer-provided financial aid, such as scholarships or grants under IRC Section 117(c), which includes college tuition and eligible expenses (e.g., books). Unlike a reimbursement program, the student usually doesn’t need to pay anything upfront.

Employer tuition reimbursement could be part of a larger tuition assistance program, but it’s much more specific. It only reimburses the student for money they’ve already spent on tuition. This means it’s repaid ~4 months after the fact and doesn’t cover other expenses like books or transportation costs.

What’s included in a tuition reimbursement program?

Typically, tuition reimbursement programs have specific criteria and limits that dictate what courses or degrees are eligible for reimbursement. These will vary depending on your company and its budget.

Here are some typical inclusions for a tuition reimbursement program:

• Undergraduate degrees (e.g., Bachelor’s)
• Graduate degrees (e.g., Master’s)
• Online undergrad and graduate online degree programs
• Professional certifications
• Educational and vocational courses
• Job-related courses and education programs
• Leadership or management development programs

In many programs, employees can choose from any accredited institution, but some tuition assistance packages only cover certain schools or fields of study. We see this more often at enterprise companies, which sometimes have partnerships with specific universities or online programs.

For equity and inclusivity purposes, it’s in your best interest to let employees choose the institutions that fit their needs best (even if they aren’t your partners).

Why offer tuition reimbursement programs?

Simply put, investing in your employees’ education will increase their retention, improve their work, and contribute more to your company.

While there isn’t necessarily a shortage of employees, there is a shortage of skilled employees. The world’s companies collectively know this – 70% admit their business performance is suffering because of their current skills gap.

According to Amazon and Gallup’s Upskilling in America study…

• 70% of employees would be “extremely likely” to switch to a new job if it offered upskilling opportunities
• For young adults entering the workforce, it’s more important than retirement, sick leave, vacation, and parental leave
• 71% of those who completed an upskilling program reported a positive impact on job satisfaction and productivity
• On a macro level, the US economy could add $651 billion annually if employees received new skills development

And, for what it’s worth, educational assistance programs are almost always conditional — employment status, length of time with the company, and continuous employment throughout their curriculum are all prerequisites. So, when employees qualify, they’ve almost certainly delivered value to your company 10x their tuition costs.

Really, it’s more of an investment than an expense. And you’re still well inside the green after offering it.

Plus, let’s not forget that employers get tax breaks, too.

Important considerations for your tuition reimbursement program

Reimbursing your employees’ education expenses is easy. You can use a stipend/reimbursement platform like Compt to reimburse through payroll.

But, offering tuition reimbursement requires a little more thinking than the rest of your employee benefits package.

Tax implications

Just like student loan stipends and loan repayment assistance, your tuition reimbursement program is not taxable, so long as you meet the IRS requirements.

• Until December 31, 2025, employers can offer each employee $5,250 of tax-free educational assistance each year.
• Any education or training benefits, — including tuition reimbursement — that exceed $5,250 in a calendar year are subject to income tax.
• $5,250 represents a cumulative total. Let’s say your employee already received $2,000 in stipends and loan assistance this year. You can only reimburse up to $3,250 tax-free.
• After December 31, 2025, you won’t receive the same tax break.
• If your employees’ educational expenses are a working condition and considered a ‘reasonable’ business expense, you can deduct education costs as ordinary business expenses (even after December 2025). Examples include continuing education courses or training that improve or maintain the skills employees can’t do the job without.

Compt is 100% tax-compliant and finance-team-friendly, so there are no back-office headaches (and the office won’t be sent into a frenzy if you’re audited).

Minimum requirements

This will vary from company to company. You’ll have to work with HR, compliance, finance, and the executive board to determine what works best for your company.

In general, though, you want school reimbursement benefits to be conditional. You can’t predict the future. If employees have to leave before their curriculum is over (or worse, you have to let them go), you’re in a tough position if you’ve already paid thousands for their tuition.

To protect themselves and their employees, companies typically enter a contract with their qualifying employees and require the following:

• The employee must have been full-time with the company for at least 6 months (or a year).
• They must maintain full-time employment throughout the course’s duration.
• You do not need to reimburse them if they switch to part-time or leave entirely.
• Coursework must be relevant to the employee’s current or future role within your company.

Often, employers take the concept of using perks to increase retention to the next level by tying tuition reimbursement to longer-term employment. For example, an employee who leaves the company less than a year after completing their certification, course, or degree program would be liable for repaying the employer’s entire tuition investment.

Since this few-thousand-dollar investment on your end requires a significant time investment on theirs, it’s your responsibility as an employer to relay these conditions to your employees.

Give them all the information they need to assess the pros and cons of accepting your offer and give them time to evaluate their own goals and future with your company privately.

Approved courses for employee tuition reimbursement

Again, you aren’t really offering an inclusive employee benefit if access to education opportunities is restricted.

While it might be easier for your company to offer tuition reimbursement through a partner school (for example, Starbucks and ASU’s College Achievement Plan), restricting your employees to a specific course or program severely limits their options for growth.

Your employee will have little choice over the content, format, duration, and cost of their education…and they may not even be interested in a degree from that particular institution.

Here’s our take:

• There’s nothing wrong with promoting certain programs or offering additional incentives. You may have a partner school that can provide extra employee benefits but don’t restrict them from seeking programs elsewhere.
• If you’re worried about the cost of attendance at other schools, put a cap on what you’ll reimburse.
• If budget isn’t an issue and you want to make tuition reimbursement as accessible as possible, offer employees an employee stipend. This more versatile option gives them the freedom to choose from various institutions and programs that fit their individual learning style and goals.

You also need to standardize your eligibility requirements across all employees. In addition to employment status and length of time with the company, two employees in the same role should have the same opportunities and access to your program.

Other educational assistance benefits

Besides tuition reimbursement, you have other options that may fit your company’s needs better. Some alternatives include:

• Student loan repayment programs: Under this model, employers contribute monthly to their employees’ student loan payments or disburse an annual lump sum.
• Student loan stipends: Similar to a tuition reimbursement stipend, employers provide employees with funding for their student loans.
• Company scholarship programs: You may offer scholarships for employees and their family members to pursue secondary education.
• Loan refinancing and consolidation: Instead of paying off their loans as is, employees can work with your preferred vendors to consolidate their loans into one payment plan or refinance the interest rate (at no cost to them).
• Inclusive professional development stipends: Compt offers a robust professional development module, which helps our customers seamlessly manage requests and budgets for classes, certifications, tuition reimbursement, and student loan repayment.

What benefits matter most to your team?

Since you want to maximize enrollment rates, personalization is the ultimate goal of a great benefits package. As Jeffrey Hull, CEO of SavvyFi puts it in our recent Getting Personal with Compt episode:

You can’t bring in [a benefit] and solve all your problems. It’s really about using this benefit as a way to really connect with something that’s really meaningful to your employees.

Running an employee benefits survey will help you pick each team member’s brain about the benefits that would improve their lives the most.

Pro Tip: Don’t forget to talk about tuition reimbursement in your overall benefits package!

Communicating your benefits package to eligible team members is one of the most important, yet most overlooked, steps in offering tuition assistance. Research from Northwestern University shows only around 40% of employees were aware of their company’s tuition reimbursement scheme, which serves to explain why as little as 10% of eligible employees nationwide actually enroll.

The key is to use multiple channels:

• Mentions during town hall meetings
• Reminders from your HR team
• Email newsletters
• Postings to the company intranet
• Personalized emails for those who haven’t enrolled

From there, tailor your communication efforts to specific times of year, like it’s a seasonal employee benefit. In the case of tuition reimbursement, that means ramping up communication efforts in late spring/early summer, a couple of months before the traditional academic year starts. This way, team members will have plenty of time to research and apply for courses or programs that interest them.

Launch and automate a tuition reimbursement program through Compt to stay tax-compliant

Looking for an easy way to launch a tuition reimbursement program? Compt’s professional development module streamlines requests, approvals, and budget tracking, eliminating complex workflows and empowering employees to grow and develop. See how it works.

Editor’s Note (April 2025): This post has been updated with best practices, new data data, and relevance for our readers.

Editor’s Note: Compt software supports the categorization and proper reporting of benefits according to IRS guidelines, helping businesses maintain compliance. However, Compt cannot provide tax advice, and users should consult their own tax, legal, and accounting advisors when necessary.