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How Does Tuition Reimbursement Work?

September 09, 2019 · 5 minute read

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How Does Tuition Reimbursement Work?

If you’re working and want to continue school but aren’t sure how to fund it, your employer may offer assistance.

It’s called tuition reimbursement, and it’s offered by many companies as a way to help employees pay for their continuing education. According to the most recent annual benefits survey by the Society for Human Resource Management, in 2018, 51% of companies offered some kind of undergraduate educational assistance and 49% offered graduate educational assistance.

And 4% of companies offered student loan repayment assistance, which provides help with employees’ existing student loans.

What Is Tuition Reimbursement?

Tuition reimbursement, or tuition assistance, is an arrangement where an employer pays for part or all of an employee’s continuing education.

Your employment contract may lay out the terms of the tuition reimbursement: how much of your tuition your company will cover, what courses qualify, any minimum GPA requirements, and the minimum time period of employment.

Tuition reimbursement is often offered as an employee benefit on top of a salary package, along with other benefits like health care, a 401(k), or transportation expenses.

This is different from student loan repayment assistance, when your company provides some amount of funding assistance for your existing student loans.

Not every company offers tuition reimbursement, but many large ones (2,500 or more employees ) do provide reimbursement or financial support for continuing education— if it relates to your current work. (Here are some large companies that offer tuition reimbursement.)

It’s a perk that helps the company attract and retain employees, while also benefiting the company, since the courses you take may provide skills or knowledge you can put into practice back at work.

Some companies are upping their educational benefits as a way to stay competitive. SoFi at Work helps companies offer a range of benefits to their employees like student loan refinancing and student loan contributions.

Tuition reimbursement may be a benefit buried in your original hire paperwork or it may not be widely advertised—so you may want to ask your boss or HR representative if your company offers it. The worst they can do is say no.

How Does Tuition Reimbursement Work?

The specifics of each company’s education reimbursement policy are likely laid out in your employment contract, but it’s common for a company to only offer a tuition reimbursement for courses related to your work. Sometimes they’ll reimburse classes pertaining to your current job description.

Other times, companies will approve courses focused on moving you into a management role or on gaining skills you can put towards other future roles or assignments.

For example, if you work in project management for a large corporation and are interested in learning how to use data visualization, you might be able to take community college courses in data production and visual graphics.

After understanding what courses qualify for tuition reimbursement, you could then consider looking over the other requirements. For example, there may be minimum GPA or attendance requirements. (Your employer doesn’t want to pay for you to slack off!)

Sometimes a company will also require you to continue working there for a set amount of time, since they’ve invested in your education and don’t want you to take those new skills to a competitor.

You’ll probably have to sign up and pay for the courses yourself first, so you’ll want to budget appropriately. In most cases you’ll need to pay for your courses out of pocket and then provide proof of completion and your grades in order to be reimbursed.

Is Tuition Reimbursement Taxable?

While you should always consult with a licensed tax professional regarding the current tax law, and in no way should any of this publicly-available information be considered tax advice, the IRS ’ website currently states that employers can deduct the cost of tuition reimbursement (up to $5,250 annually). It’s a business expense for them. The IRS website also states that the first $5,250 of tuition reimbursement isn’t considered taxable income. However, anything above that counts as part of your taxable wages and salary. Again, talking to a tax professional is always recommended.

The IRS does have some requirements on tax-free educational assistance benefits—which are not necessarily the same requirements your employer has.

Typically, for the IRS to count your tuition assistance as tax-free, it should be used to pay for tuition, fees, textbooks, supplies, or equipment.

And typically, it can’t be used for meals, lodging, transportation, or any equipment you keep after the course. It’s also not applicable to sports, games, or hobbies—unless they’re a degree requirement or you can prove they’re related to your employer’s business. Again, consult with an accountant or tax attorney to get the complete picture.

What Are Other Options to Lower Education Costs?

The average cost of attending a four-year public college as an in-state student during the 2018-19 school year was $10,230 and that price tag only goes up for private schools and out-of-state students. This may be difficult for you to swing.

If you can’t get tuition reimbursement from your employer, there are other options that could be worth considering. If you already have student loans, when it comes time to repay you could consider refinancing those student loans at a lower interest rate. This could help you save money in the long term; refinancing at a lower monthly payment could help with budgeting in the short term.

It’s important to note that there are various federal student loan repayment options, such as the Standard Repayment Plan or income-driven repayment plans like the Graduated Repayment plan, and the Revised Pay As You Earn Repayment Plan (REPAYE), which are available to you depending on the sort of federal student loan you have taken out. And if you choose to refinance your student loans, federal loan benefits will no longer be available to you, such as Public Service Loan Forgiveness (PSLF), income-driven repayment options, cancellation, and discharge.

If you don’t already have student loans, you might consider taking out private student loans, which can assist you with your tuition and school-related expenses. SoFi offers no-fee private student loans with flexible repayment options. (Again, private student loans don’t offer the same repayment benefits that federal student loans offer, so do your research.)

Again, even if your employer offers tuition reimbursement, you’ll likely still need to pay for the courses upfront. And if the cost of classes is higher than the amount offered, you may still need to pay the additional amount. And tuition reimbursement may not be an option at all.

If that’s the case, there are other avenues: financial assistance from relatives, budgeting and saving, or taking out student loans. Any or all may help with achieving your educational or career goals—getting you back in front of those textbooks you’ve been dreaming about.

If you’re looking to refinance student loans, prequalifying online with SoFi takes just two minutes. SoFi offers student loan refinancing with no application or origination fees and no prepayment penalties. Plus, existing SoFi members may qualify for rate discounts.

Learn more about refinancing your student loans with SoFi today.


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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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