Roughly 1.2M workers received education benefits from their employers for undergraduate programs in 2016,
with 259K using benefits for graduate-level education, according to the most recent federal data
. Those numbers, however, are down substantially from a decade before, mostly because of a decline
during the Great Recession’s aftermath. And the impact of the flurry of new corporate free college programs is unclear.
The federal government supports employer education benefits through a tax break for participants. Workers can exclude from their income up to $5,250 per year in education contributions from their employer,
regardless of whether the college program is related to their job.
The tax benefit can help companies encourage their employees to pursue education and training—and that incentive to preserve education benefits is particularly important during economic downturns as businesses face pressure to cut costs, according to a 2020 report
from the Aspen Institute Future of Work Initiative.
Yet the $5,250 cap has been in place since 1986. The tax benefit for workers, which costs the federal government $1.3B a year, does not cover the full tuition and fees for many college programs.
Movement in Washington: Two bills with bipartisan support would update the tax benefit and more than double the annual cap, increasing it to $12K.
With support from some congressional committee members who oversee education, workforce development, and tax policy, the push to increase the cap has a chance. Advocates stress that expanding the tax benefit is about student debt prevention and encouraging employer investment in worker education and training, which has bipartisan appeal.
Congress could attach this policy to tax extender
legislation. But that might not happen in an election year, observers say. Another possibility would be to include a version of the proposal to a potential slimmed-down version of the stalled Build Back Better bill
, which might get a lift due to worries about the impact of inflation.
Why It Matters:
Increasing the tax credit would better support workers while opening access to more education programs, says Jill Buban
, vice president and general manager for EdAssist Solutions at Bright Horizons, an intermediary for education benefits.
“Not only would more postsecondary institutions consider offering tuition cap programs, but increasing the benefit can also help cover added education costs, like textbooks and fees,” she says.
Companies can spend more than the cap amount to help employees with costs and the tax hit. A quarter of employers go above that limit with their education benefits, including some large corporations. But increasing the cap would eliminate complexity for employers and workers, advocates argue, and would encourage more companies to be more generous with education benefits.
“We hear from learners who are slowed down in their pursuit of learning or forced to shoulder a tax burden because this cap hasn’t been updated in decades,” says Bijal Shah
, chief experience officer at Guild Education, which manages tuition benefit programs for companies. “It inhibits their career mobility and limits their opportunity.”
Guild has a vested interest in the expansion of corporate education benefits, as do EdAssist Solutions and other companies in the space. Shah says raising the cap would be “one of the most meaningful and expedient ways Congress can support working adult learners.”
Some higher education and business groups also support expanding
the tax benefit for workers. The American Council on Education, for example, wrote to Congress last year
to call for a significant increase in the cap, which it said should be tied to inflation. More than 30 higher ed associations signed the letter.
Officials at big companies say eliminating costs for employees substantially increases their participation rates in education benefit programs,
which typically have been about 2 percent
among eligible workers. Amazon, for example, said this week that it has seen a 45 percent increase
in employee uptake of its Career Choice program since expanding that benefit
The Kicker: “We know that removing financial barriers for front-line workers who work in lower-paying positions can provide access and open more opportunities for them to pursue a degree or credential,” says Buban.