As a cost accountant in a former life, I have always found it interesting the way that tuition remission is handled. Basically, the full cost of the benefit is apportioned to fringe benefits under “operating costs” and the entire amount of tuition is recognized as revenue, with no offsetting tuition discount. Let me identify a couple of problems I see with this treatment.

First, none of the employees who qualify for remission would have paid the full sticker price for tuition – pretty much ever – had they not received an employee dependent benefit. So, to recognize the entire amount of billed tuition as revenue is illusory. In fact, most of these students are bright, being dependents of employees who themselves did quite well in their educational pursuits. A few might actually qualify for the highest academic awards, making remission to be not all that different from what they would have received in aid off the street. Charging the entire difference of full tuition and the net amount paid by employees to employee benefits is just plain inaccurate.

In recognition of this, I recommend initially packaging (assigning institutional financial aid to) remission students as if they were not employee dependents. From their EFC (expected family contribution) off the FAFSA, they will receive need based aid according to standard institutional formulas. They will also be considered for academic awards, based on the same criteria applied to others. For those institutions that offer athletic awards, make the student’s participation in a sport contingent on the coach offering a scholarship. After applying all of these awards; the ones the student would have received if they weren’t a dependent, the actual benefit cost winds up being the amount needed to bring a net tuition bill from the normal discounted level to the agreed upon benefit level – potentially no tuition cost at all.

As an example, presume that tuition is $20,000 and employee dependents pay 5% of that price or $1,000. Suzy, a dependent of a College employee, has an ACT of 28 and qualifies for an $8,000 annual grant as a result.   Because of her family’s EFC, she also qualifies for a need based grant of $4,000. The College’s employee Dependent Tuition Assistance Grant (EDTAG) winds up being $7,000, leaving a bill of $1,000 in tuition for the student. This better reflects the amounts apportioned to tuition discounts and employee benefits.

The second problem I have with this involves students who visit from other campuses under reciprocal employee dependent agreements. In one sense, the cost of a remission program should be borne by the sending institution. Since that may be too cumbersome to manage, I suggest a net charge of tuition to the visiting student for the actual amount of tuition owed after the benefit. Again, a 95% of tuition benefit would mean that the visiting student is charged $1,000 for tuition (gross = net) with no discounts applied. It would be inappropriate to charge a tuition benefit received by a visiting student to employee benefits. You can’t be assured that you have an equal number of students going elsewhere as you have attending your institution. The net charge approach is thus a better way to reflect true benefit costs for remission.

I know this is somewhat technical and may not be of interest to most readers of this blog. I do interact with institutions that are looking for ways to trim expenses, however, and some are considering changing their remission policy. By using the approaches identified above, the lure of taking this benefit away may be less interesting. And your employees who are typically not paid all that well will thank you.