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A Long-Term Bet on Employer-Assisted Tuition Programs

Strategic Education Inc. and Noodle Partners launch new platform connecting employees to employer-subsidized college degrees.

September 22, 2020
 
istock.com/TeroVesalainen

An economic downturn in the middle of a pandemic may seem like an odd time to launch a platform encouraging employees to take advantage of workplace college tuition benefits. But Strategic Education Inc. and Noodle Partners are playing a long game.

The two companies yesterday announced the launch of WorkforceEdge, a “complete employee education management platform” that aims to create a seamless approach to administering tuition assistance benefits.

The platform will connect select employers and their employees with degree programs from a network of higher education institutions cultivated by online program management company Noodle Partners. The platform will also include academic offerings from the two for-profit institutions run by Strategic Education -- Strayer University and Capella University.

Strategic Education built the WorkforceEdge platform with collaboration from an unnamed pharmaceutical company. This unnamed company will be the first to try out the platform as part of a pilot program beginning later this month.

Eventually, Strategic Education wants all its employer partners, of which it has several hundred, to start using the platform. Likewise, Noodle Partners intends to bring all of its university partners onboard the platform, said John Katzman, founder and CEO of Noodle Partners. A small number of institutions have agreed to participate in the platform pilot, but Katzman said he could not share the names of the institutions at this stage.

Strategic Education's CEO projects the platform will scale quickly following completion of the pilot. “We envision hundreds of partners and tens of thousands of students using this platform over the next five years,” said Karl McDonnell, CEO of Strategic Education.

The WorkforceEdge platform will enter a nascent but growing marketplace for services that broker relationships between employers and colleges -- tapping into the estimated $20 billion companies spend each year on tuition benefits for their employees.

Guild Education, founded in 2015, works with large employers such as Walmart, Chipotle and Lowe’s, connecting their employees to online programs at institutions such as Southern New Hampshire University and the University of Arizona. InStride, an independent company whose founding investors include Arizona State University and TPG's The Rise Fund, has a network of 11 academic institutions and more than 30 corporate clients. 

Many universities are trying to combat falling enrollment on campus by expanding their online programs, Katzman said. By participating in WorkforceEdge, universities that partner with Noodle will have the opportunity to develop new enrollment pathways for adult learners in collaboration with their employers.

“I’ve been looking for a partner to do this with for years,” Katzman said. “I increasingly see Noodle as a network. We’ve got universities. We’ve got providers doing some terrific work for them. We’ve got millions of students on our website,” he said. “Creating a simple link between companies that offer education as a benefit and great schools is a natural extension.”

The vast majority of employees with access to employer-assisted college tuition don’t use their benefits, said Terry McDonough, president of alternative learning at Strategic Education.

“Many people don’t know what the benefits are and how to use them,” said McDonough, who described the current process for administering these benefits as “Byzantine.”

Typically, employees have to ask their employer to find out if tuition benefits are available, then they have to identify the degree program they want to study and determine whether their employer will actually allow them to use benefits toward their program of choice. WorkforceEdge will take away the ambiguity of this process, McDonough said.

“Some of our partners, even large companies, are still using spreadsheets to keep track of the way people are using their benefits, and very few have what I would call a front-end marketplace of education solutions that are preapproved and in-network,” he said.

By laying out which education providers are considered in-network rather than out-of-network -- a concept similar to how health-care benefits are presented at most companies -- WorkforceEdge will make it much simpler for employees to see the educational opportunities available to them, McDonough.

But in the midst of a pandemic and economic downturn, are many companies still offering tuition benefits? McDonough says yes. While many companies have had to furlough staff members in response to COVID-19, few employers working with Strategic Education have cut their tuition benefit programs. Employers want to keep these benefits because they help to attract and retain talented staff, said McDonough.

Employers currently offer two kinds of tuition assistance programs -- tuition reimbursement and employer student loan repayment, said Liz Supinski, director of research products and data science at the Society for Human Resource Management.

Tuition reimbursement is tax deductible by businesses at a level of $5,250 per student employee per year under Section 127 of the Internal Revenue Code. Due to its deductibility, this benefit is fairly stable over time, Supinski said in an email.

According to SHRM data, tuition reimbursement decreased about 2 percent per year from 2007 to 2011, suggesting that following the Great Recession, some companies reduced their education benefits programs. From 2007 to 2011, the number of organizations providing undergraduate education benefits decreased from 68 to 58 percent, settling at around 55 percent from 2015 through 2019. It is too early to say what the impact of the latest economic downturn on this sector will be, Supinski said.

Employer student loan repayment is a relatively new benefit that was rarely offered during the last recession, said Supinski. The coronavirus relief package passed earlier this year, the CARES Act, allowed for the same tax treatment of employer student loan repayment for the period between March 27 and Dec. 31 of this year only.

“I would anticipate that few employers will retain this benefit once the tax advantage ends,” Supinski said. From 2015 to 2019, when there was no tax deduction for employers offering this benefit, only around 4 percent of employers offered student loan repayment programs.

Only a small percentage of employees ever take advantage of employer tuition-assistance programs, because many of them are “very happy that they have had their last day of school,” said Anthony P. Carnevale, director of the Georgetown University Center on Education and the Workforce.

If there is no direct career benefit to an employee completing an education program, then even with tuition assistance, the offer is often not particularly attractive, said Carnevale. With guidance to help employees select programs that will benefit their career, however, there is value in connecting employers to education providers in order to retrain or upskill employees, he said.

There are many “missing links” between the U.S. higher education sector and employers, said Carnevale. While these missing links can be partially plugged by efforts from the private sector, Carnevale believes the government will eventually need to do the work of connecting the education system to the job market. 

"We need a counseling system that actually follows kids from high school to their post-secondary job and can effectively connect unemployed people to jobs -- right now America has no such thing," said Carnevale. "This is about building a more active labor market policy connect to education." 

A key goal for the WorkforceEdge platform is to introduce more private capital into the higher education system, said McDonnell, CEO of Strategic Education. He described a vision to “fully transition our tuition revenue to private sector employers over the next ten years.”

For-profit institutions have been criticized in the past by consumer advocates and policy makers for relying too much on federal financial aid and military benefits. But McDonnell denied that his vision is driven by a need to diversify the income of either Strayer or Capella Universities away from federal funding because of the 90-10 rule. The federal 90-10 rule caps the portion of a for-profit university’s revenue from federal financial aid sources at 90 percent.

The potential to drive new students into online education programs managed by Noodle Partners, or offered at institutions owned by Strategic Education, appears to be the biggest financial incentive for the companies to collaborate on the platform. But details of the economics of the WorkforceEdge platform and the financial relationship between Strategic Education and Noodle Partners remain unclear. McDonnell said that neither employers nor employees would pay any fees to access the platform, but Noodle Partners will pay a small fee to Strategic Education to manage corporate relationships and flow of data.

Though Strategic Education designed and will manage the WorkforceEdge platform, McDonnell said there would be no preferential treatment of some institutions over others. He noted that there is “little overlap” between the programs offered at Strayer and Capella and the programs offered by institutions that work with Noodle Partners.

“While the economics of this relationship aren’t yet transparent, a venture like this appears to further demonstrate the continued value and advancement of responsible private capital in the higher education and workforce development marketplaces, particularly by using technology platforms to better connect more traditional institutions of higher education and their students to employers,” said Jennifer Blum, principal at Blum Higher Education Advising LLC.

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