Despite the inflation of college tuition far outpacing the growth of wages, having a bachelor’s degree is still one of the best ways to boost earning power and job opportunities. A 2014 report found that a person with a bachelor’s degree earns over $20,000 more per year on average than someone with just a high school diploma. One way to help defray the cost of college is to take advantage of your employer’s tuition reimbursement program, but before you do, here are some questions to answer:
When will you be reimbursed? Your employer may require you to actually complete a course before you will be reimbursed so you either need to dip into savings or take on debt. This is meant to encourage you to complete the course so make sure you have the capacity in your life to take on the additional work before you commit the tuition dollars. And of course, make sure you apply for reimbursement as soon as you’ve passed your class!
What’s actually covered? The program offered at your employer may only cover certain areas of study or apply to certain educational institutions, while only the most generous programs actually cover all costs. Therefore, make sure you’re filling out a FAFSA form each year to see if you qualify for any other aid. Then figure out how you’ll pay for anything that’s not reimbursed.
What are the tax consequences? The IRS only allows the first $5,250 each year to be reimbursed tax-free, which has led to more than a few panicked calls to our Financial Helpline at tax time. If you’re lucky enough to have an employer who will pay for your entire tuition, know that you will have to pay taxes on the amount over $5,250, just as if you’d earned it. And because there are no withholdings sent to the IRS for that money, it can be a huge chunk of change. Make sure you account for that in your savings plan the year that you are reimbursed so you aren’t stuck in the hole on April 15th.
How long will you be required to stay with your employer? Obviously, the reason most employers have these programs is to end up with a smarter, more qualified work force. If you’re going back to school for a career change, you may not want to take advantage of this benefit if it means you’ll have to stick around post-graduation for a certain number of years, which can reduce your chances for finding a job in your new field if you wait too long post-degree.
Will it actually increase your earning capacity? Most likely yes, but many people pursue degrees through workplace programs expecting a big raise along with their diploma, only to find that paying for the diploma WAS the raise. Before you commit to a field of study, you need to know if it will truly help your earning capacity in the long run. Otherwise, your time (and money) may be better spent improving skills that will actually earn you more money.
Tuition reimbursement programs can be a valuable part of your employee benefits package. Just make sure you’re totally clear on the specifics of your workplace program before you get started. You want to get the most bang for your buck…and for your studying.