Section 117(d) survives. Now what do we do about tuition remission?

Those of us who have worked in higher education dodged a bullet with tax reform. Section 117(d) remains in force, allowing employees and their dependents to receive qualified tuition reductions tax free, at least for undergraduate study. Most call this “tuition remission,” suggesting that tuition is a form of cancer that we are temporarily free of. Many of our CFO Colleague institutions don’t exactly pay all that well so the retention of 117(d) is appreciated by those who could earn measurably more elsewhere.

While it is appropriate to celebrate that 117(d) is a “tax reform survivor,” let me suggest that now is a good time to take a good look at how it is accounted-for and administered. Call it preparing for the next time while making sure beneficiaries understand just how good they have it.

Let’s say you are one of those places that applies the 117(d) benefit to the student’s entire undergraduate tuition bill and charges the cost to an employee expense line. The presumption of this treatment is that the student would otherwise pay full tuition, were it not for 117(d).

We all know that is not true.

Our best practice institutions are packaging students who qualify for remission as if they were not receiving the benefit. They receive need, merit and performance grants, along with federal and state assistance in their package estimate. Then, the magic of 117(d) is applied to bring the remainder down to zero.

The result? First, the discount rate from institutional aid is more accurately stated since a portion of tuition for these beneficiaries will be covered by the college’s own grants. Second, the cost of employee benefits is reduced, making the benefit overhead rate lower (and reducing the tendency to avoid hiring new people because of how costly their overhead is.) Third, the employee has a better handle on the level of benefit they are receiving. When it’s full tuition, some see it as merely a free benefit and ignore its total value. Fourth, it helps in establishing how much of the benefit goes to different classes of employee. The benefit is subject to certain income level discrimination tests so having the value established for each class could blunt criticism that it is more beneficial to higher paid employees.

Finally, it is an object lesson, and an important one. When looking at the total college bill and adding back remission, how easy would it be for employees to afford you? One of the criticisms of remission is that it shields the very people setting prices from experiencing the impact of those prices. I’ve heard remission recipients complain about the cost of room and board. Brother, you don’t know the half of it!

In light of public angst over college costs, we may want to spend a session every year with remission recipients helping them understand what our non-employee families go through.

Call it walking a mile in their shoes – or spending a month in their checkbook.

What do you think?

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