Starbucks Announces Free* College Education. *Kinda sorta free

Starbucks and Arizona State University (ASU) Online announced yesterday an innovative partnership to provide a free online college education to thousands of its employees. At first blush, this sounds like a great idea. According to Starbucks, more than 70 percent of its 135,000 employees are currently college students or are aspiring college students. Given the sheer size of the Starbucks workforce, that’s a great benefit for many current and future employees. But like many “free college” programs, this benefit comes with a lot of strings attached:

1) To receive the full benefit, an employee must be a college junior or senior. The benefit includes an upfront scholarship to cover part of tuition costs—it’s unclear how large these scholarships  will be. Then, each time a junior or senior completes 21 credits, he will be reimbursed for the full cost of tuition and fees for the credits–provided he’s remained eligible for benefits (i.e. work 20 hours a week). The details are still rather sparse, but it sounds like freshmen and sophomores will at least be eligible for some amount of a scholarship, but no reimbursement. They could always start at another institution, like a community college, but like many transfer students, they may find that they lose some of their credits in the transfer process. (ASU Online does have this website that helps students see how their credits will transfer.)

Given that more than 40 percent of students attend community colleges, I find it surprising that Starbucks didn’t also partner with local community colleges or have a community college partner. In order to keep costs down for students, Starbucks should consider making the scholarships more flexible for freshmen and sophomore students so they can use them at local community colleges first, where the money will go much further, and then transfer in to ASU Online.

2) Employees will potentially have to bear significant upfront costs. Depending on what the upfront scholarship is, juniors and seniors will have to pay for the rest of tuition and fees out-of-pocket until they reach the 21-credit threshold. At approximately $500 a credit, ASU Online is not cheap. Juniors and seniors could face around $10,500 in upfront costs. Meanwhile, freshmen and sophomores will face even larger costs since they won’t be reimbursed every 21 credits. Additionally, the reimbursement automatically appears in a student’s paycheck. So if a student took out a loan to cover his upfront costs, because of the interest accrual the reimbursement will not even cover the cost of the loan.

This 21-credit policy also brings up a lot of questions. This is almost two semesters worth of credit. A lot can happen over two semesters. What happens if a student suddenly falls below the 20 hours a week required to remain eligible? Given the shift nature of Starbucks employment, it seems possible that the student’s work situation could suddenly change. Also, what happens if an employee is let go? Furthermore, if a student works 20+ hours a week and is also a full-time student it can be difficult for them to succeed. Given the upfront cost, it pushes a lot of risk onto the student.

3) Federal aid first, then the employee benefit. Employees must fill out the FAFSA to see if they are eligible for any federal aid. According to Inside Higher Ed, students are required to apply for federal aid first. Any reimbursement would kick in after that. But again, this brings up many questions. What is Starbucks considering aid? If a student receives a Pell Grant and a subsidized loan that covers all of tuition and fees, for example, will Starbucks have to reimburse the student anything? Arguably, loans should not be considered aid when Starbucks reimburses students.

The fact that Starbucks is willing to help its employees get a bachelor’s degree is laudable—especially considering that once a student obtains the degree, he does not have to stay with Starbucks. The problem is that this program is free* college. It’s not actually free. Students face significant upfront costs, no help with living expenses, and constant eligibility concerns.

This partnership, although innovative, is not the way to solve the college cost problem. In this situation, the student picks up the tab first, and then if they are successful Starbucks will pay the student back. Removed from the equation is the institution. ASU Online is an expensive school. At approximately $15,000 a year for tuition and fees alone, the price is more than four times the price of an average community college ($3,264) and a little less than double the average in-state tuition rate of $8,893.

Undoubtedly, this program will benefit some of Starbucks’ 135,000 employees. But anyone who thinks this may be an innovative solution to the college cost problem is mistaken. Loans don’t make college more affordable and free* college employer/employee programs don’t make college more affordable: It’s the price of college that makes it more affordable. Until we address the cost drivers of higher education, this remains an exercise in continual cost shifting.

As more details have emerged on the Starbucks plan, I've written a new blog post you can access here. 

Updated 6/17/2014: According to multiple sources, Starbucks employees do not need to be full-time students to qualify for the benefit. I made some slight changes to the language of this blog post to reflect this new information."

Updated 7/20/2016: Added link in first paragraph to ASU Online/Starbucks partnership page.