Starbucks recently announced a dramatically innovative “College Achievement Program” for many of its employees. The implications of this new form of corporate social responsibility are many, and may even prompt Congress to change Sec. 127 of the tax code.  

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Starbucks CAP: Re-thinking Education Assistance?

Thu Jun 19, 2014

This week Starbucks announced an innovative new college tuition program for its benefits-eligible U.S. employees who do not yet have a bachelor’s degree.

While details are still being clarified and questions remain, Starbucks College Achievement Plan (CAP) appears innovative in several respects:

First, starting this fall eligible “partners,” as Starbucks employees are known, who enroll as college juniors or seniors, will receive “full tuition reimbursement” for each year of study toward a bachelor’s degree. Partners who enroll as freshmen or sophomores will receive partial scholarships and financial aid.

Most employer tuition assistance programs today operate under provisions of Section 127 of the U.S. tax code. This provides for an exclusion from gross income of up to $5,250 of employer-paid educational assistance. Full tuition reimbursement under the Starbucks plan could conceivably exceed $5,250.

The second striking innovation is that the company, with some 19,000 stores in 60 countries, will pay tuition for eligible employees who enroll at only one institution—Arizona State University (ASU).

Third, Starbucks partners will enroll in online ASU courses as opposed to traditional classroom settings. The university explains that partners “will get the chance to finish a bachelor’s degree with full tuition coverage through ASU’s top-ranked program, delivered online.”

While no one knows how many employees will enroll in the ASU degree program, CEO Howard Schultz said that Starbucks employs “over 100,000 young people in America,” suggesting the universe of eligible employees.

What are some implications?

For one, Starbucks has reformatted the model for employee tuition assistance—offering full tuition reimbursement, partnering with a single university and endorsing online courses as a work-life balance option for busy employees.

For another, the company has reformatted concepts of corporate social responsibility, reminding us that CSR begins at home—helping employees learn the skills and earn the credentials they need to compete in a global economy.

Finally, Starbucks may have reformatted the public policy template for educational assistance. Section 127, first enacted in 1978, maxes out at $5,250, meaning that some Starbucks employees could owe income taxes on at least a portion of their reimbursements. Congress might consider raising the sec. 127 exclusion limit, to make a bigger investment in America’s young people.

While Starbucks needs to clarify some important details, the new College Achievement Plan promises to change the way many employers think about employee education assistance.