When does it make financial sense to take advantage of employer's tuition reimbursement program?

Question

Many companies offer tuition reimbursement programs. On the surface, these programs are such that qualified employees can enroll in undergraduate / advanced degree programs (or even take individual classes), and the employer will reimburse the employee for an amount of the cost. This can be the full amount, a percent based on the grades received, a percent based on the employee's status (e.g. full time, part time), or basically whatever the employer decides.

At first glance, this seems like a dream come true: most terminal master's programs are self-paid.

However, there are often strings attached. Most importantly, the employer can place a requirement such that the employee must not voluntarily terminate employee X years after their last completed course / program. E.g., Sally receives her master's degree through her generous employer's reimbursement program in 2015. If Sally voluntarily terminates employment before 2017, she has to pay back the tuition in full to the employer (2 year buffer period).

some require employees to remain employed with that particular company for a certain amount of years after completing the course in order to avoid paying back the reimbursement.[1]

Other companies simply deduct what they paid for education from an employee's final paycheck - and continue to send bills - if the employee leaves sooner than the company considers appropriate[2]

Some employers require you to commit to staying with the company for a certain number of years after you've finished your education. Moving on before fulfilling the commitment may require you to pay back all educational assistance[3]

Now, besides essentially committing oneself to the company to years until degree completion + employer buffer period to take full advantage of the benefit, one also has to consider that they will likely be at the same job (and possibly pay grade) for several years.

Note there could be other benefits to enrollment (assuming half-time, still working full time at employer): if Sally has federal student loans, she no longer has to make payments, and her subsidized ones no longer collect interest.

Let us suppose Sally is a young and bright Software Engineer with potential. She recently graduated and her salary when she was hired is $80,000 (including all benefits, like paid time off). The salary increase at her employer averages 2.5% per year, with promotions roughly every 5 years. A promotion is also given when/if Sally receives an advanced degree (e.g. master's or PhD). Promotions always include salary raises. Tuition reimbursement program requires the employee remain 2 years afterwards, otherwise they must pay back the money. Involuntary termination due to circumstances outside Sally's control (lay offs, company falls apart) exempt Sally from the 2 year agreement.

Now, besides Sally somehow master minding her future involuntary termination due to business problems (not her performance, etc.) after she receives her degree, should Sally take advantage of the tuition reimbursement to pursue a master's? Or, will Sally get a better return by changing jobs?

Citations:

[1] http://www.forbes.com/sites/moneybuilder/2012/07/20/tuition-reimbursement-a-benefit-for-some-employees-and-employers/

[2] http://www.salary.com/tuition-reimbursement/

[3] http://www.bankrate.com/finance/college-finance/abcds-of-tuition-reimbursement-2.aspx

Answer 1

If you have decided to do the degree, and are simply deciding whether to accept employer funding for it or not, take the funding. I see no difference between "my employer doesn't pay my tuition" and "my employer paid my tuition but I had to pay it back because I moved on". Therefore there is no downside to letting them pay the tuition. If you want to move on before the two years (or whatever) is up, you pay back that interest free loan. You are still ahead over self funding the degree.

If you have not decided to do the degree, and are letting the employer-funded tuition figure into your decision process, stop that right now. Doing a degree is hard work. You will either work much longer hours than you do now, or live on a lower salary, or more likely both. You might enjoy it, you might be worth more afterwards, and it might open the door to a raft of careers available only to those with the degree. The actual cost of the tuition is unlikely to be significant in this decision process. Removing it (by assuming the employer pays it) should still not be done. If it's worth doing when you self fund, then do it and relax knowing you won't feel trapped at your employer even if you let them pay it (or lend you the money for it if you end up leaving.)

Answer 2

If you know that you want that advanced degree; And there is a way to have your employer pay for some of it or all of it; And you are reasonably certain that you will not be quitting for X years after completing the degree; Then it is financially sound to consider having the company pay for it.

If you are interested in finding out if an advanced degree in that field is possible/feasible for you; but you aren't 100% sure; And it is possible for your company to pay for the first few classes; then it is financially sound to consider having them pay for the first semesters worth of classes.

The key is to determine if the company has a requirement that you must complete the degree, or you will owe them the money. In many cases you are not committed to having them pay for all semesters. I have known employees who used the company to pay for the early classes, then paid for the last few on their own.

Keep in mind that most employers only pay you for the classes that you have good grades; they require you to submit paperwork before the semester; but don't pay you back until after the semester.

Because of a rolling time frame you can protect yourself by keeping in reserve the maximum amount that you would have to repay the employer if you quit. For the companies I have worked for you only had to stay an extra year, you would only have owed them for that last year if you quit. Keeping a years tuition in reserve allows you to mitigate the risk of having to quit. If the question is about risk, then hedging make sense.