The Starbucks Tuition Program: A Good, Free-Market Start

This story from Starbucks is a nice, positive one about higher education (for a change):

Starbucks (SBUX) and Arizona State University are entering a first of its kind partnership that will allow many employees to get college degrees without going deep into debt or, in some cases paying any tuition at all.

The Starbucks College Achievement Plan will give full tuition reimbursement to employees working more than 20 hours a week if they enter ASU’s online program as juniors or seniors. Others will be able to apply for scholarships worth $6,500 on average if they enroll as freshmen or sophomores. ASU has promised that its advisors will help students apply for other need-based financial aid programs.

The tuition reimbursement program only applies to Starbucks workers at company-owned stores. Workers at licensed stores, such as the ones in grocery stores, aren’t entitled to company benefits. Starbucks has roughly 8,100 company owned locations compared to 5,400 licensed stores.

Bravo, Starbucks.

As frequent readers of Pocket Full of Liberty know, we often discuss the costs of higher education and the root cause of the parabolic trend upward: government. In short, the increased availability of student loan money at an artificially low interest rate has increased the demand for college education. That is not necessarily a bad thing, until you realize that the job market sucks and you won’t get a $100,000 job after you major in South Pacific Interpretive Dance for five plus years.

One of the big memes during the 2012 election and even afterwards is that the evil Republicans are “doubling” the interest rate by refusing to extend the student loan interest subsidy that Congress periodically has to authorize. Rather than focus on difficult tasks such as college education costs, student loan debt, and the job market, the President and his OFA minions found it more convenient to focus on the subsidized student loan interest rate increase with a snappy #hashtag.

Leave it to the free market to offer a solution.

Starbucks’ new benefit for its employees is a nice example of a corporation being a “good citizen” on its own accord. No government passed a statute mandating tuition reimbursement. There were no massive protests or boycotts by professional “activists.” Starbucks simply decided that, as a fringe benefit for its employees who work twenty or more hours per week, they could enroll online with Arizona State University’s degree program and obtain a degree.

Tuition reimbursement is not a new concept, of course. Many companies encourage their employees to enroll in Masters’ programs, for example, and pay for them. However, it is typically expected (i.e., contractually mandated) that the student work for the company for a period of time or else be forced to reimburse the company.

Starbucks’ program actually does not require the employee to stay on for any period of time longer than graduation:

Starbucks says employees who accept the deal will face no obligation to repay the value of the scholarship or stay with the company. For public consumption at least Starbucks is simply trying to address an inequality that’s leaving many Americans behind. In a statement CEO Howard Schultz referred to the “fracturing of the American Dream” and inequality seemingly cementing itself in the country. “The question for all of us is, should we accept that or should we try and do something about it.”

Now, I don’t know all of the details of the agreement between Starbucks and Arizona State University, but I’d bet they offered Starbucks reduced tuition costs if a certain number of Starbucks employees enrolled. If that’s correct, that is a good thing as well, because it’s an example of a free market solution leading to a lower cost of higher education.

Of course, there are already some detractors who are complaining that Starbucks employees who work at licensee stores (like in Target or Barnes & Noble, for example) aren’t eligible:

But thousands of baristas who wear Starbucks aprons won’t be eligible for free college.

The tuition reimbursement program only applies to Starbucks workers at company-owned stores. Workers at licensed stores, such as the ones in grocery stores, aren’t entitled to company benefits.

That’s not Starbucks’ fault, obviously (as the article points out). Those employees actually work for Target or Barnes & Noble — not Starbucks.

On the one hand, we have the government which is pushing more and more student loans on students –essentially “throwing money at the problem.” As the financial blog Zero Hedge points out, student loans outstanding (and delinquencies) are at record highs. Moreover, student loans are not dischargable in bankruptcy except under certain circumstances (death, incapacity, and the like).

On the other hand, we have market innovation with Starbucks and ASU. I’d imagine that other megacorporations will follow suit soon as well, leading to more decreased costs and degrees with other institutions.

Bottom line: Starbucks has taken a step towards helping its employees get a college education at low or no cost. Rather than subsidizing the costs of tuition and pushing unsustainable debt loads on students, government should find ways to reduce college costs. It can start by getting out of the student loan business and let private lenders lend (at market rates).

As always, free markets are better markets.