The Truth Behind Starbucks' Tuition Plan

Starbucks’ “free college” announcement was probably the public relations coup of the year. CEO Howard Schultz earned gushing ink from the New York Times and gushing praise from Jon Stewart on the same day. As details dribbled out about the Starbucks College Achievement Plan, however, it became clear that the program is neither as generous as it was made to sound, nor as beneficial to students. Criticism flowed soon after, much of it from the academic world.

Sara Goldrick-Rab, a professor at the University of Wisconsin-Madison, led the charge.

“ASU Online is a profit venture,” Goldrick-Rab said to MSNBC. “And basically, these two businesses have gotten together and created a monopoly on college ventures for Starbucks employees.”

The critics, however, made barely a dent in the PR benefits that Starbucks gained from the full-press publicity surrounding the initial announcement (heck, Secretary of Education Arne Duncan helped launch it).

A Closer Look at the Fine Print

Now that the dust has settled, who’s right?

Starbucks’ critics have a host of valid points.

1. The biggie: Starbucks employees now essentially have to go to Arizona State University. It’s certainly uncomfortable that a corporation can dictate, through financial incentive, where its employees go to school. Starbucks could have offered to provide the same level of financial help to students attending other schools if it were really doing this out of a simple desire to encourage college attendance or completion.

2. Starbucks employees now must attend college online (or forgo a valuable benefit). Sure, online coursework is increasingly popular, but the jury is still out on how effective online-only study is. Some claim online classes disproportionally hurt poor and minority students.

3. The offering is designed more to help Starbucks workers finish college than to start college. Basically, the company will cover costs not funded through aid for junior and senior year; freshmen and sophomores get only discounted tuition. Depending on individual circumstances, it might still make sense to attend an inexpensive local community college for the first year or two, since Starbucks isn’t offering as much help with those years. Also, employees will be earning money, and that will count against their aid eligibility.

4. Starbucks had been calling that reduced tuition during year one and two a “scholarship” in public. That seems misleading; we now know, thanks to comments from ASU president Michael Crow to The Chronicle of Higher Education, that Starbucks has merely done the equivalent of negotiating a group discount for its employees. It will provide no money to ASU to cover this discount.

5. Starbucks is also not giving out as much free tuition to third- and fourth-year students as it initially appeared. Starbucks will only pay what aid won’t pay, and the firm’s own analysis found many students will qualify for Pell Grants or other aid. That’s a common strategy for funding college students; some athletic scholarships, for example, cover only the portion of costs not covered by federal aid. Starbucks did make this point in its initial announcement, but it might have been missed by giddy commentators excited at the notion that Starbucks might be giving away free college degrees.

6. Students must complete chunks of 21 credits before they are reimbursed for their out-of-pocket expenses. That means workers must make significant upfront cash outlays, can’t quit their jobs during that time, and must maintain high GPAs while working at least 20 hours a week.

7. Finally, even those who credit Starbucks for giving college and health care benefits to part-time workers point out the potential sticky question raised by the Starbucks program: Is it a good idea to make college another workplace benefit? If that becomes a trend, it might make the problem of tuition inflation worse, and also could further limit college accessibility.

On the Other Hand …

There should be no misunderstanding: The Starbucks College Achievement Plan is a business deal between two for-profit entities. It’s a huge coup for ASU, giving it an enormous pipeline of new students and a tremendous shot of credibility. It’s also smart business for Starbucks. Paying employee tuition is a big tax write-off — a $5,250-per-year-per-employee tax write-off. Also, Starbucks suffers from tremendous employee turnover. By some estimates, two-thirds of its workers leave every year. Employees who are in the middle of an ASU program almost certainly won’t leave the company, saving it potentially millions in retraining costs and lost human capital.

Just because it is a good business deal doesn’t mean it’s a bad thing, however. It’s undeniable that the Starbucks program has these two great benefits — there is no repayment-or-indentured-servitude requirement, which exists in most tuition reimbursement programs. (These require employees to remain with the employer for some time after school is finished, or face a large repayment bill.) Also, Starbucks is not limiting workers to programs that fit the company’s needs, as many employers do. These two facts alone make the Starbucks program more good than bad.

It remains to be seen how much Starbucks-encouraged school counseling and classwork camaraderie will help students. Starbucks has a real chance to create a culture of scholarship among its workers, with managers and newbies alike helping each other with school issues. One can imagine all Starbucks workers encouraging each other to go to school. That might be the biggest boon of all.

In the end, it’s troubling that Starbucks is essentially dictating where and how its employees can attend college. With a simple adjustment — open up reimbursement to other schools, both virtual and real — Starbucks could easily address this concern. But that problem certainly doesn’t mean the Starbucks College Achievement Program should be scrapped, or even that the cheering should stop.

The outright adulation, on the other hand, is too much. In his interview with Howard Schultz on The Daily Show, Jon Stewart said he had trouble finding something not to like about it. He, and we, could have looked harder. Starbucks is a business, not a charity. In all the excitement, you might not have noticed that the company announced price increases this week.