Amazon’s free US college tuition offer is worth only $5,250 a year

Limited generosity.
Limited generosity.
Image: Reuters/Pascal Rossignol
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Amazon announced on Sept. 9 that it will cover tuition costs for most of its employees. The retailer is the latest company to offer education-related perks as a bid to attract more workers in a historically tight market, but there is at least one major caveat: due to current federal regulations, they will only offer up to $5,250 a year.

Dave Clark, CEO of Worldwide Consumer at Amazon, said that the $1.2 billion investment seeks to build on the company’s Career Choice program, which previously covered some tuition costs and offered on-site classes. The company now wants to remove the “biggest barriers to education—time and money” by covering some costs of tuition, text books, and other fees for more than 750,000 operations employees throughout the US, starting in January.

The Amazon announcement follows similar moves by rivals like Walmart and Target, which both recently said they would provide tuition assistance to employees. With a record 10.9 million jobs currently open in the US, employers are struggling to attract and retain workers. College tuition assistance—in addition to perks such as signing bonuses and higher wages—may help alleviate that problem.

But how far do these education benefits go? For most college-going employees, they’ll likely not cover the entire bill for a four-year degree.

“Full tuition” caps out at $5,250 a year

While Amazon’s offer is being billed as covering “full tuition,” employees will only receive up to $5,250 a year to cover education-related expenses. This is the maximum amount that companies can put toward their employees’ education each year without the employee being taxed under a federal program called Section 127.

Many other companies, including Disney and McDonald’s, also offer up to just $5,250 in education benefits due to this regulation.

As The Aspen Institute noted in its research on employer education assistance (pdf) last June, the $5,250 tax exclusion amount was enacted in 1986, when average US undergraduate tuition was just $2,312. Today annual in-state tuition at a public four-year institution in the US is $10,560, according to research by College Board (pdf), while out-of-state tuition averages around $27,020.

What programs will be available to students?

Some companies have gotten past the $5,250 reimbursement cap by partnering directly with certain institutions to cover a higher share of tuition. Starbucks, for example, covers 100% of tuition if their employees complete a first-time bachelor’s degree online through Arizona State University.

Amazon says it has put out a call for schools interested in partnering with the company to help employees earn bachelor’s degrees, but no further details are currently available.

The retailer has previously offered financial support for employees looking to earn certificates and associate degrees in high-demand industries such as aircraft mechanics, commercial driving, and nursing. Some 50,000 employees have taken advantage of these benefits since 2012.

Peter Cappelli, a professor of management and human resources at University of Pennsylvania’s Wharton school, notes that with Amazon’s notoriously high turnover rate, the number of employees who have benefited from the company’s education programs thus far is likely a tiny fraction of their workforce.

Part-time staff will not be eligible to take advantage of full benefits

Amazon will only cover 50% of college costs for part-time workers. This may make the deal less sweet for students who don’t want to work full-time while completing their degree.

“The caveat to their program is that few people can use these programs…because it means you are going to school [on] nights and weekends, which is hard,” Cappelli told Quartz. “About 2% can do it in typical companies. Here it’s going to be much less in part because if you don’t stay long, you can’t use them.”

An earlier version of this story suggested that companies could put $5,250 towards employee tuition each year without being taxed; that is the dollar threshold at which an employee would be taxed under Section 127.