Amazon, Walmart and Target are luring workers with debt-free college degrees. Is it working?

Beginning next year, Amazon’s 750,000 hourly wage workers can have their entire future college tuition costs covered – debt-free. That includes textbooks and fees, as well as costs for high school diploma or equivalent programmes and language certification courses.

Walmart, the nation’s largest retailer, removed its $1-a-day fee to participate in its Live Better U programme and will now cover all tuition fees and textbook costs for 1.5 million employees.

Within a week of Target’s announcement of its debt-free college programme last month, more than 10,000 people from its 340,000-strong front-line workforce signed up for information, a company spokesperson told The Independent.

The retail giants join mega-brands like Starbucks and McDonald’s offering similar tuition plans, as big-box stores and fast-food companies attempt to lure – and retain – part-time and hourly wage retail and food service workers with a potentially life-changing benefit that costs companies relatively little, can be a tax write-off, and commits employees to working for them as long as the degree requires.

Many large employers now are extending debt-free college benefits – formerly seen as a white-collar perk – as an incentive for low-wage work during the ongoing public health crisis.

The pandemic has also seen one of the largest union organising efforts in modern US history, as labour organisers pushed for higher wages and stronger health protections, which have turned into bargaining chips that later keep unions out of the workplace.

While workers are in demand and companies struggle to fill positions, Amazon has seen a turnover rate of 3 per cent a week, or 150 per cent a year, despite its massive hiring campaign, according to The New York Times.

Offering up no-strings-attached tuition could help alleviate some of that drain.

“They might be able to get enough productive months or years out of somebody to make it worth the investment,” Chris O’Leary, a senior economist at the WE Upjohn Institute for Employment Research, told The Wall Street Journal.

Higher education degrees are often requisite for entering the so-called “skilled” workforce, though a majority of Americans don’t have any.

But the coronavirus pandemic and its economic fallout have forced employers to confront workplace realities for their low-wage hourly workers – staff are leaving after managing and enforcing public safety guidelines in front-facing jobs, potentially exposing them to Covid-19, while juggling unpredictable school closures without reliable childcare.

Despite some gains in employment figures in recent months, there were still 5.3 million fewer jobs in August 2021 than in February 2020, according to Labor Department data analysed by the Center for Budget and Policy Priorities.

The majority of jobs lost over the last 18 months have been in low-wage industries, accounting for 30 per cent of all jobs in the US but 53 per cent of all jobs lost during the pandemic.

Last month, more than 24 million Americans met the definition of unemployed – meaning they were actively looking for work or had been temporarily laid off – or lived with unemployed family members, including 6.4 million children, according to the Census Bureau.

But the pandemic has also frozen employment prospects for millions of Americans.

More than 3 million people were not employed because of health concerns or fears of inadequate or inconsistent safety measures against Covid-19, while 5.5 million others were caring for children who are not in school or enrolled in daycare, according to a recent survey from the US Census Bureau.

Most US employers see the expansion of voluntary benefits packages – from additional healthcare to financial planning and tuition assistance – as an important part of their organisation, surging to 94 per cent of employers from only 36 per cent just a few years ago, according to advisory and brokerage company Willis Towers Watson

The company’s May 2021 survey found that 88 per cent of employers who responded currently offer or plan to offer within the next two years some form of tuition reimbursement programme.

Lydia Jilek, senior director of Voluntary Benefits Solutions at Willis Towers Watson, said new benefits – from healthcare coverage to education – are a “cost-effective” way to both attract workers and meet current worker demands.

“The pandemic has given rise to an increase in benefits that protect employees against big hospital bills and loss of income, and provide personal protection,” she said.

Supplemental benefits beyond traditional benefits packages “provide additional ways to support their employees’ overall wellbeing and enhance the perceived value of their benefit offerings,” she said.

What also makes tuition assistance attractive benefits for employers: relatively few workers end up taking them.

Starbucks has roughly 19,000 of its 228,000 US workers in its programme, and roughly 1.7 per cent of Walmart’s 1.5m employees were enrolled in its Live Better U as of mid-2021.

Five per cent of companies that responded to the Willis Towers Watson survey said that “many” or “most” of their employees were enrolled in some kind of tuition programme, while 58 per cent said “very few” or “few” employees are.

But the number of employers who said that their workforce was enrolled in programmes to relieve their existing student debt from degrees they’ve already earned was at 17 per cent.

The trend in higher education benefits also follows a growing student debt crisis, which has ballooned to 45 million Americans holding more than $1.8 trillion in debt for their degrees.

A bulk of that debt surged over the last decade as private university enrolment grew and federal and state governments made steep cuts to higher-education funding against a backdrop of widening income inequality.

One McDonald’s worker and nursing school student, the first in her family to go to college, told The Balance that she stayed on with the company for part-time work solely for the scholarship through its Archways to Opportunity programme, which covers up to $2,500 of tuition assistance each year.

“It would have definitely been more difficult to pay off my loans without it,” she said. “It took a nice chunk out of that total at the end.”

Financial analysts have also cast some doubt on the weight of degrees earned from online universities compared to traditional in-person courses at more prestigious institutions.

Wealth adviser Ryan Cullen of Cullen Investment Group told Forbes that online degrees may help workers climb to higher wages at their current job but “may not necessarily translate to higher-paying jobs at other companies.”

A Starbucks employee who put down $5,000 to enrol in classes, an amount that was later reimbursed through his paycheck, told Vox that he could only find similarly low-paying jobs after graduating, but the risk of carrying massive debt after college was too great.

Starbucks has one of the longest-running tuition programmes, starting in 2014, with online courses for dozens of degree programmes offered through Arizona State University. Internal newsletters showcase graduates and success stories. In 2021, the company offered to pay the full cost of tuition up front instead of reimbursing it.

Nearly 7,000 people have graduated through the programme, a company spokesperson told The Independent. Nearly 80 per cent of its stores have at least one person enrolled in courses, and the company’s goal is to reach 25,000 graduates by 2025.

Amazon’s Career Choice plan allows any hourly employee who has been with the company for at least 90 days to enrol; that plan will extend to the 400,000 new workers who were hired during the company’s pandemic hiring surge.

Previously, Amazon’s plan covered up to 95 per cent of tuition costs and did not include bachelor’s degrees, and eligible employees had to work for Amazon for at least a year. More than 50,000 workers have participated in the programme, according to Amazon.

Several companies – including Disney, Target and Chipotle – have partnered with Guild Education, which offers preselected online degrees from a select group of universities with online courses.

Target’s plan offers “250 business-aligned programs from over 40 schools, colleges and universities.”

Employees “have no personal financial obligations” if they stop taking courses, according to Target. “Target will cover the cost of the tuition for the term the team member is enrolled in.”

For workers who want to enter a different undergraduate or master’s degree programme, Target will pay tuition up to $5,250 for non-master’s degrees and up to $10,000 for master’s degrees.

That $5,250 figure hits a magic number before tax liability – employers can deduct the expense, and the benefit is not taxable for employees, unless they drop out of the programme or quit their job.

Many of the brands offering these benefits – from Amazon to McDonald’s and Starbucks – have also faced high-profile campaigns among workers for union representation, which the companies have rejected.

International Brotherhood of Teamsters – one of the largest labour unions in the country – includes tuition discounts and free college courses as part of its benefits package.

The union pledged “all resources necessary” to unionise Amazon workers after warehouse employees in Alabama voted down the prospect of membership in the Retail, Wholesale and Department Store Union after workers pushed for better and safer working conditions.

The union has accused the e-commerce giant of obstructing the vote, and the National Labor Relations Board also is considering whether to call a new vote.

The vote even prompted then-CEO Jeff Bezos to call for a “better vision for how we create value for employees.”

Amazon, in return, announced in September its expansive tuition plan, along with starting wages of $18 an hour and the hiring of 125,000 warehouse and transportation workers.

“Amazon is now the largest job creator in the US,” said Amazon’s Dave Clark. “We know that investing in free skills training for our teams can have a huge impact for hundreds of thousands of families across the country.”