THE CASE FOR EMPLOYER-SPONSORED TUITION ASSISTANCE:

INVEST IN EMPLOYEES OR LOSE THEM

Summary by Bill Browning

NVCC Special Projects and NVFS Training Futures

April, 2005

If yours is a smaller or mid-sized organization without an employee tuition assistance benefit, this tool can help you custom-design a new benefit targeted to address specific business objectives at a surprisingly low cost.

If your organization already offers a tuition assistance benefit, but you are unsure whether it is delivering the biggest bang for the buck, this tool will help you tune up your policy to maximize results for minimal cost.

There is a growing body of research and organizational case studies which show that carefully-designed employer tuition assistance benefits can help organizations achieve 3 compelling business objectives noted below, plus several other less tangible organizational benefits:

• Improve retention of top frontline staff

• Attract high-performing new employees

• Boost productivity and company profitability

This tool provides an objective overview of the business case that can be used to advocate for employer-sponsored tuition assistance benefits. Next, the tool describes the policy levers that human resource managers can use to custom-build or tune-up a tuition assistance policy to advance the business objectives that matter most to the organization. Finally, this tool provides cost comparisons between various college providers in Northern Virginia so that companies can estimate costs and steer employees to the providers that offers top value.

The Business Case for Employer-Sponsored Tuition Assistance

New Employee Recruitment

Professional development is becoming an increasingly important benefit to help an organization attract new employees. In 2003, outplacement firm Hecht Harrison reported that 76% of job-seeking workers desire ongoing training in their next jobs, up strongly from 41% in 1999. In the same 2003 survey, the majority of job-seekers (53%) specifically cited employer tuition assistance, up from 40% four years earlier.

The attraction of this benefit is most powerful with younger job applicants. According to the Society for Human Resources (SHRM), education assistance is important to 20% of potential recruits under the age of 35, but only 4% of those over 55.

Since 79% of employers provide educational assistance (SHRM, 2002 Benefits Survey), the minority of organizations that do not offer this benefit may lose potentially valuable new talent to one of the majority of companies that already offers this benefit.

If your organization’s ability to attract new recruits is important to organizational success, especially in junior positions where younger applicants are more common, tuition assistance is becoming an increasingly attractive inducement.

Employee Retention

In Hecht Harrison’s national career mobility index, employee-initiated turnover nearly doubled from 2003-2004, from 3.8% to 6.0%. According to the 2004 SHRM Retention Study, 35% of employees nationally are actively job-searching. As the job market improves, this percentage will increase to 47%. Who’s most likely to leave? According to this SHRM survey, HR managers believe that non-management staff are three times more likely to leave for another job than middle and executive management.

In Northern Virginia, with an unemployment rate of less than 3% and trending even lower, employee-initiated turnover is an especially acute business risk. Each case of employee-initiated turnover often costs $1,000 or more a pop, after factoring in recruiting, new employee training, and additional costs associated with lost productivity while new staff learn the job. This increasing risk of costly employee turnover spurs many organizations to consider new or improved tools to retain staff. Tuition Assistance may be the most potent tool, for frontline workers in particular. Consider the evidence:

• Dissatisfaction with potential career development is the #2 reason to begin searching for a new job, behind compensation and benefits. (SHRM and Career-Journal.com, 2004)

• “Career development opportunities” is rated in SHRM’s 2004 Retention Study as the second most effective retention strategy (behind compensation)

• The #1 employer benefit to help retain front-line employees is tuition reimbursement, cited by 66% of respondents in a 2000 survey by Manchester, Inc., ranking ahead of even health insurance.

• A study by the Wharton School of Business suggests that workers who use tuition assistance stay longer with the company

• 88% of employers who offer educational benefits claim their programs are useful employee retention tools (International Foundation of Employee Benefit Plans, 2000)

• 23% of employers directly tie tuition assistance benefits to retention by instituting payback rules which require employees who receive this benefit to pay a portion of the tuition back to the employer if they leave within a certain period of time (IFEBP, 2000)

Employee Productivity and Company Profitability

Many employers use tuition assistance to supplement company training programs. A company’s overall investment in employee development can boost the productivity of individual employees and enhance company profitability. Past research (Bishop, 1989) has shown that employees who receive workplace training have a 30 percent higher productivity rate after one year than staff who are not formally trained. More recently, experts at the Wharton School of Business observed that employees who utilize tuition assistance benefits have stronger motivation and morale, as well as higher productivity levels. Wharton’s research suggests that workers who use tuition assistance have a productivity rate above the typical market level.

A 2000 study using data from 2,500 companies by the American Society for Training and Development shows a powerful connection between investments in employee development and company profitability, as the study’s summary results below show.

• An increase in $680 in a firm’s training expenditures per employee generates an average 6% improvement in shareholder return the following year

• Firms with per-employee training expenditures among the top quartile of firms studied enjoyed 24% higher profit margins and a 218% higher income per employee than firms ranking in the bottom quartile of training expenditure per employee

Other Business Objectives

Employers also cite other less tangible business objectives that tuition assistance helps to achieve. Some say that this policy is an important part of organizational culture, providing tangible evidence of an intangible organization value: the importance of continual learning and ongoing professional development. Other HR managers support tuition assistance as one way of creating a qualified, promotable pool of internal talent.

One HR manager summed up by noting multiple benefits: “Our tuition aid program supports our focus on having high-calibre, well-educated and qualified employees. Moreover, it provides us with a valuable competitive advantage.”

Tuition Assistance Policy Levers

HR managers use a variety of policies to shape and direct the organization’s tuition assistance policy, some of which channels this benefit to achieve specific objectives and others to help control costs or encourage greater participation. The chart below outlines policy levers that can be used to custom-design an employee tuition assistance policy to meet a company’s business objectives, cost sensitivity, and desired participation rate.

Business Objective Levers	Business Objectives	Usage Notes
Job-related Requirement	Productivity	Many require course to be job-related
Business Need Requirement	Productivity	Few require business rationale for approval
Payback requirement (stay or repay)	Retention	Around 25% of employers require payback if employee leaves within specified time (e.g., 1 year)
Grade requirement	Productivity	Many pay only for grades of C or better
Type of employee who qualifies	Recruiting/ Retention	Some policies only pay for under-graduate work; some extend to part-time employees
Expense Control Levers
Annual, per course and/or lifetime caps	Control Costs	Most have annual per employee cap of $5,250 or less
% of tuition reimbursed	Control Costs	Most reimburse 100%, but some reimburse 80% or less; Percentage reimbursed may depend on individual course costs
Vary the percentage paid to low vs. high cost providers	Control Costs	Some employers reimburse a higher percentage of public institutions’ tuition cost to encourage use of lower cost providers
Tuition-only vs. tuition + books		63% of providers cover book expenses also
Participation Rate Levers		** Less than 10% of eligible employees typically use tuition assistance benefits
Up-front or reimbursement		Most companies reimburse employees, but a few pay for courses up-front, which greatly increases participation.
Internal promotional efforts		Higher internal promotion translates into higher participation

Cost Comparison of Select Providers in Northern Virginia

NVCC’s tuition costs are nearly 80% less than the average college costs for the following major institutions serving Northern Virginia.

College/University	Location(s)	Cost per Credit Hour
Marymount University	Arlington	$554
Stratford University	Falls Church, Woodbridge	$335
Argosy University	Arlington	$380
Regent College	Alexandria	$365
TESST College of Technology	Alexandria	$365
TESST College of Tech.	Alexandria	$365
Strayer University	Alexandria, Arlington, Ashburn, Manassas, Woodbridge	$270
George Mason University	Arlington, Fairfax	$227*
Old Dominion		$254
University of Virginia		$354
Virginia Tech		$259
Northern Virginia Community College	Alexandria, Arlington, Annandale, Springfield, Woodbridge, Manassas, Loudon	$69*
Northern Virginia College Cost Index	Average cost of 11 above institutions	$312

Notes: All tuition rates are taken from institutional websites as of 2/2005, and are based on published tuition rates for part-time students. Tuition for public institutions are in-state tuition rates including all course fees.

Employers can select preferred providers to maximize convenience, quality and value to the company and its employees. For example, 100% tuition reimbursement to an employee attending Strayer University taking business classes for 12 credits in a year will cost the company $3,240 in tuition. If the employee takes the same business courses at Northern Virginia Community College, the reimbursement cost for the company is $828. In this example, the company has provided equivalent benefits to the employee at a cost savings of $2,412 (75% lower cost).

Let’s see how savings might accumulate in a company-wide preferred provider campaign. Consider a company of 1,000 employees with a 10% annual participation rate in its tuition assistance program. If just 10 of participating employees chose to register for NVCC classes rather than Strayer, the company would achieve savings of $24,000 in a year.

Benefits to Employers That Choose NVCC Preferred Provider Package

• Special tuition rates for Virginia employers regardless of where individual employees reside

• Most credit courses transfer to 4-year institutions

• Consolidated direct billing to company

• 6 convenient locations: Alexandria, Annandale, Woodbridge, Manassas, Loudon and Springfield (medical campus)

• On-line learning options for many courses

• On-site course delivery options

• On-site college counseling to help employees plan career development

Local Case Studies Cited in the Literature

• Freddie Mac, McLean VA: Nearly 10% of Freddie Mac’s 4,200 employees use tuition reimbursement annually, which costs about $1 million per year. Supervisors at Freddie Mac integrate tuition assistance policy into individual performance plans, and meet periodically with employees to evaluate progress in these development plans.

• SRA International, Fairfax VA: 20% of salaried staff and 25% of hourly staff use the company’s tuition assistance program.

• Capital One, McLean VA: Offers 100% tuition reimbursement for public institutions and 80% for private schools. “We can actually correlate a significant return on investment,” said a company spokesman. “We’ll spend a dollar to make more than a dollar back.”