A new push to raise the cap on tax break for workers’ education

Will Congress increase the $5,250 cap on the tax break for workers for their college tuition benefits? Also, the latest on opening up Pell to shorter-term programs and new numbers on Indiana’s grants for in-demand certificates.

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Revisiting the $5,250 Cap

More than half of U.S. employers offer education benefits to their workers. And amid a tight labor market, a growing number of big companies are using free college programs to help attract and retain employees.

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.

• The limit would be increased for two years under one proposal, which would cost about $1.3B.
• The other, more ambitious, bill would index the $12K cap for undergraduate programs to inflation, increasing the amount each year. That proposal would cost significantly more—an estimated $13B.

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.

Pandemic stimulus funding added student loan assistance to the tax benefit, allowing workers to exclude from their income $5,250 in employer payments toward their loan debt. Congress extended that provision through 2025. About 8 percent of employers make student loan payments as a benefit.

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 last fall. 

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.

Data and Short-Term Credentials

Congress does not appear to be close to passing a proposal to open up Pell Grants to education programs that can be completed in less than 15 weeks. If that legislation remains stalled, and if Republicans take the majority in the House and Senate after the midterm elections, the GOP might take the lead with its own short-term Pell bill.

In an interview published this week, Representative Bobby Scott, the Virginia Democrat who leads the Committee on Education and Labor, gave Politico’s Bianca Quilantan his take on what sort of short-term Pell proposal Democrats might support going forward.

Scott said he strongly supports an amendment the Democrat-led House passed last year, which would nix for-profit and online college programs from being eligible for short-term Pell.

“Right now, you can only use Pell Grants for courses that lead to a college degree. If all it leads to is a good job, you can’t use the Pell Grant. Well, that’s ridiculous,” Scott told Politico. “The problem is that we don’t want to get in a situation where people set up little storefronts, pass out worthless credentials and take all the Pell Grant money. We need to have significant safeguards to make sure that the programs are providing.”

To create adequate guardrails for short-term grants, Scott touted the College Transparency Act, a companion bill to the Democrats’ version of short-term Pell. The proposal would require colleges to report a wide range of enrollment and student success data across their credential programs.  

“It would outline clearly which schools have good graduation rates, good [job] placement rates, where you can see that you’re getting value for your dollar, and that would go a long way into helping us solve the problem of whether for-profit schools should participate in the short-term Pell Grant program,” Scott said.

Scott’s potential compromise points to a real need for better information, says Julie Peller, executive director of Higher Learning Advocates. “With those data, policymakers and students could be more reassured about the outcomes of all programs, regardless of profit status,” she says.

Going Local: Whatever happens at the federal level, states and community college systems continue to expand their own subsidized shorter-term credential offerings, sometimes with help from federal stimulus money.

Indiana’s Workforce Ready Grant, for example, is aimed at workers without college degrees. It pays for certificates from the Ivy Tech Community College system and other colleges, with a focus on high-demand fields, including advanced manufacturing, building and construction, health sciences, IT, and more. As Elin Johnson reported last year for Work Shift, Indiana is viewed by some as potential proving ground for this form of grant. 

The state says recipients on average have seen their annual wages increase by $6,800. And this week, Stephanie Wang found some new numbers about the grant program in her reporting for Chalkbeat Indiana in partnership with Open Campus.

Since its creation in 2017, almost 60K students have received funds under the grant program, Wang reports. And about 33K have completed certificates. But the state, which spends $3M per year on the program, lacks data on program completion rates and has yet to analyze available data on whether grant recipients got better jobs with their new credentials.

Marketing scholarships for short-term programs to potential students is a common challenge for states and community colleges. Indiana spent $2.5M last year on marketing the grant, wrote Wang, more than triple the $700K it spent the previous year.

The Chalkbeat Indiana article included comments from experts who were concerned about whether certificates are paying off for students, as well as if the grants might encourage the tracking of more Black and Latino students into short-term programs and away from four-year colleges.

Ideally, students would be able to easily stack a certificate toward a degree.

A new report from the National Student Clearinghouse Research Center found that 23 percent of new bachelor’s degree earners had a prior associate degree, an increase of 5 percent. Likewise, a growing number of associate degree earners held a certificate—nearly 10 percent last year.

The working parent featured in Wang’s article, 41-year-old Laura Rucoba, who used a grant to complete a technical certificate and land a job she enjoys as a medical assistant, theoretically could advance in her profession with additional certifications and, eventually, a degree.

Yet that sort of stackability remains elusive, and most medical assistants do not climb up the ladder to become nurses or other better-paying healthcare roles.

Open Tabs

Working Mothers

Federal policy to broadly expand subsidies for early-childhood education would increase employment rates for mothers by six percentage points, with substantially larger increases among lower-income families, according to a new paper published by the National Bureau of Economic Research. Family expenditures on childcare would also decrease while the quality of care would increase.

Good Careers

Upward mobility has gotten more difficult, with nearly 60 percent of Americans from socioeconomically disadvantaged backgrounds not holding steady, decent-paying employment by their early 30s, according to an analysis from the Brookings Institution. Educational and social disruptions amid an unsettled labor market make this a critical time for increased investment and innovation, argues an essay in the report.

College ROI

Economic returns for business degrees are high, but less than those associated with health, engineering, and computer science programs, according to a new report from Georgetown University’s Center on Education and the Workforce. While wages and loan debt vary, most business programs lead to median earnings that are roughly 10 times graduates’ debt payments two years after graduation.

Education Benefits

More than 25K Amazon employees have joined the Career Choice program this year, a 45 percent increase in employee usage of the free college benefit. Roughly 80K workers have participated since September, when Amazon announced an expansion that included paying employee tuition in advance. For example, more than 200 employees enrolled across the Maricopa Community Colleges in the spring semester.

Coalition Merger

The Hire Opportunity Coalition, which helps large employers hire, retain, and professionally develop young people who are disconnected from school and employment, will merge with the SkillUp Coalition, which brings together training providers, employers, and nonprofits. Partners for the HOC, which was founded by Starbucks and the Schultz Family Foundation, include Amazon, Verizon, Five Guys, and Hyatt.

Ed-Tech Moves

Byju, an India-based education-technology firm, has offered to buy 2U in a cash deal that values the high-profile online program management company at more than $1B, Bloomberg reported this week. The acquisition was uncertain and 2U’s board could reject it, according to the report. 2U, which bought edX last year and bootcamp provider Trilogy in 2019, has been betting big on short-term credentials.

Broadband Workforce

The U.S. likely does not have a large or diverse enough workforce to make good on the $65B federal investment in broadband under the infrastructure legislation, according to the nonprofit America Achieves. The group recommends engaging unemployed and underemployed workers through apprenticeships and evidence-based training programs, including those built upon programs offered by community colleges.

Job Quality

The U.S. Departments of Labor and Commerce released “Good Jobs Principles” for a shared framework on job quality for workers, businesses, governments, and other stakeholders. The framework is part of a larger federal Good Jobs Initiative, including grant programs and other funding for training in high-demand fields. The initiative focuses on sectors like construction, broadband, and electric vehicles, which are key to the $1.2T infrastructure investment.

This newsletter will return in a skinnier form for the second half of July. I’ll fire it up again with too many words in August. Hope y’all get some time off this summer as well. —@paulfain