Dear Dr. Don,
I am enrolled in an advanced degree program with my current employer, who is willing to pay most of the cost of the education. Sounds like a good deal, right?
After completing the degree, I'll be required to remain with the company for three years or I'll have to pay the money back to my employer. Since the education will take two years, I'll basically have to commit five years to the company on top of the three I've already spent there.
As it now stands, I have no intention of leaving. But it seems like eight years at one company is a lot. I'm young and at the early stage of my career.
Should I finance the degree with student loans and keep the company reimbursement in a savings account or similar investment? If I do leave, I'll have the school aid money to pay the company back. On the other hand, if I stay, I'll have the company funds ready to apply toward student loans before much interest adds up.
What would you recommend?
-- Mike Myriad
That's a very creative approach. But it might be harder to pull off than you expect, at least the complicated scenarios that you describe.
I checked with Mark Kantrowitz of Edvisors, an education information provider, about your plan. "Employer tuition assistance is considered a form of financial aid and, in general, will reduce eligibility for other forms of financial aid, such as student and parent loans," he says.
Kantrowitz adds that private student loans usually have a cap on financial aid for cost of attendance.
I don't know about compensation in your particular field. But my contact indicated that employees facing a potential reimbursement can always negotiate that with a future employer.
The amount of time spent with just one employer isn't as relevant as whether you've gained increased responsibility or promotions over that time. If you don't expect to gain new responsibilities over those eight years, I can understand how that would seem like a long time.
There are income tax issues associated with tuition reimbursement as you described. The first $5,250 of educational assistance benefits paid each year by your employer under a qualified educational assistance program should be excluded from income. If benefits paid over $5,250 also qualify as a working condition fringe benefit, your employer doesn't have to include them in your wages. See IRS Publication 970, Tax Benefits for Education, for more information, including whether you qualify for any business deductions for work-related education. This gets complicated on the tax side, but is likely worth the time for you to investigate.