THE EVOLVING ROLE OF BUSINESS IN EDUCATION
Note: This is an adapted post based on a presentation I gave during the Denver Metro Chamber of Commerce’s — State of the City Luncheon.
My presentation was focused on the evolving role of business in education, and in the spirit of TLDRs (too long, don’t read), if you don’t have time to read my full post, I hope that you’ll action off of these three points:
#1 Businesses can and should have an impact on America’s educational future. Companies that aren’t talking about the role they can play in this conversation should start having this conversation now.
#2 If the past is any indicator of the future, we are about to witness massive disruption with regards to employee benefits. Education will be a key component of that disruption.
#3 Automation is coming faster than we might think. Business leaders have a civic duty to figure out where we can step in to help America’s workforce keep up.
The U.S. economy is changing rapidly, we all know that, and our workforce isn’t prepared to keep up. This is one of the most important problems of our time.
There are a few interrelated trends in our macroeconomic climate that will drastically impact our country’s ability to thrive as the fourth industrial revolution takes hold.
Trend #1: Rapid Advancements in Automation
47% of the US workforce is at risk of automation. This shift will disproportionately impact frontline employees — those who deal directly with customers, or are directly involved in making a product. Given the impact of automation, advanced technology skills, social, emotional, and higher cognitive skills will continue to grow in demand rapidly. That said, the demand for physical, manual, and basic cognitive skills will continue to decline, as these are the easiest jobs to automate.
In my day to day work, I can already see the speed at which automation is taking over. Even in highly technical jobs, like data engineering, the low-level tasks of piping data from one place to another are being automated by companies like Fivetran, who are specifically focused on these efforts.
Trend #2 — Growing Student Debt Crisis
Since the 1980s, the cost of a 4 year degree has more than doubled, while minimum wage and the average early career salaries have not. Between the 1980s and 2018 the cost of a private 4 year education went from $15K to $35K, and in public universities the percentage increase has been even higher, going from $3K to $10K. While there is a lot of debate as to why costs are rising, some of the reasons include increasing demand for higher education, increases in federal aid leading to increased prices, as well as state funding reductions.
Due to these rising costs, as well as a lack of financial literacy education, and a non-guaranteed return on investment — student loans have seen a 157% increase in cumulative growth over the last 11 years. One could say that we have turned into a lending economy, and all debt is rising. That is true, however, relative to other types of household debt, student loan debt is rising the fastest and has the highest 90+ day delinquency rate of all household debt and more than 1 in 10 borrowers is at least 90 days delinquent on their loans.
The public sector is proposing a number of solutions to deal with the student debt crisis, and if you are paying any attention to the democratic presidential race, one of the hottest topics on the debate circuit is our student loan debt crisis. Elizabeth Warren recently proposed a new bill to cancel student loan debt. Unfortunately, this doesn’t help the impact automation is going to have on our future of work, and just pushes the debt to another party to handle, our government, which already has a $1.1 trillion deficit.
Trend #3 — Widening Skills Gap
Based on the automation trends we are seeing, post secondary education is extremely important to help prepare Americans for jobs of the future, but the student debt crisis, combined with increasing cost of college means that we have a mismatch in supply and demand. The vast majority of jobs created since the 2009 recession require education beyond high school, and that trend shows no signs of backing off. Unfortunately, fewer than half of Americans aged 25–64 hold a credential beyond high school.
Additionally, according to a recent McKinsey Digital study, 40% of employers reported they couldn’t find employees with the right skills set and more 77% believe that addressing the skills gap is a top 10 company priority.
In addition to an increased mismatch of supply and demand, the skills gap has another unintended consequence. It continues to cause an increasing income divide between the haves and have-nots. The cumulative growth in income for the top 1% of our country has grown by 242%. While the middle three quartiles hovers at 50%. This reinforces the increasing income disparity across the United States.
A New Paradigm: Shifting The Order of Operations
Until now, we have lived in a world where you get a college degree to get a job, and the broader workforce has relied on this mental model as a way to achieve economic success. With all of the issues outlined above, I am hesitant to believe that this should continue to be the only model by which we operate.
At Guild, we believe there is a solution that involves shifting the paradigm of school and work. Rather than thinking about going to school to get work, what if you get a job to fund going to school? We, at Guild, call this tuition assistance. Tuition assistance would reduce student loan debt, be a great tool to guide employees towards jobs of the future, and reduce the skills gap overall.
You are probably asking yourself two questions:
- Why do I think this will work?
- Don’t some employers already fund education benefits for employees?
Let me answer the second question first. The short answer is yes. Some businesses in the U.S. already offer an education benefit, usually in the form of tuition reimbursement. Tuition Reimbursement is when an employer pays a student back for a degree, certificate, or educational credential they are obtaining after they have completed a degree or credential. While this might work for folks who have coffers of discretionary spending, basically those who can afford to pay for something out of pocket, and stomach waiting to get paid back, it doesn’t work for front-line employees. These individuals are living paycheck to paycheck. They can’t afford to fork out a few thousand dollars, let alone hundreds of dollars to pay for school in the hopes of getting paid back. This doesn’t help shift the paradigm for how we think about the intersection of work and school, because tuition reimbursement is geared towards the top 1% of our workforce.
There is also a growing discussion around offering loan reimbursement benefits to employees. To help with our student debt crisis specifically, this seems like a great solution. However, there are two key issues with Loan Reimbursements that employers should keep top of mind. The first is that it is an extremely high cost benefit that doesn’t directly correlate to employee retention benefits. The second is that Loan Reimbursements are actually paying for decisions individuals have made in the past, versus helping them prepare for the future. It doesn’t directly address or combat the skills gap issue that businesses are going to face, and therefore the ROI for a company is not as compelling.
The Historical Evidence On Impacts Of Tuition Assistance
Given I’m so data oriented, I believe history can provide us clues on what may happen in the future, and underscores why I believe Tuition Assistance adoption by employers is on the rise.
Employer funded education benefits were first pioneered by our government post WWII.
In fact, President Franklin D. Roosevelt signed the Servicemen’s Readjustment Act in 1944, commonly known as the GI Bill, which offered veterans tuition and living stipends for college or vocational programs after they returned from the war. The GI bill is credited with the economic boom post WWII. Roughly 8M veterans took advantage of this program, and for Veterans who did, on average, they earned $10,000–15,000 more per year than those who did not. Consequently, some analysts have called it “the best investment the US government has ever made.” As more Americans took advantage of higher education, they earned higher wages, and could therefore pump more money into the economy by buying homes and consumer goods, creating a thriving middle class. The GI Bill is still used today as a model for how going to work can fund getting an education.
The Case For Rapid Adoption of Tuition Assistance
I believe employer funded education is ripe for adoption across the United States. To understand why, we can look at how employer funded health insurance gained popularity in the U.S.
Essentially, in 1942, with so many eligible workers diverted to military service, the nation was facing a severe skilled-labor shortage not dissimilar to today, but for a very different reason, the war. That said, economists feared that businesses would keep increasing salaries to attract workers, and inflation would spiral out of control as it did in Europe post World War I. To prevent this, President Roosevelt signed and executive order which froze wages for workers. This was called the Wage Stabilization Act. Given this order, employers needed to find new ways to compete for workers and looked to differential benefits as a way to attract employees, one of those differential benefits was health insurance coverage. Furthermore, in 1943, the IRS decided that employer-based health insurance should be exempt from taxation. This made it cheaper to get health insurance through a job than independently, causing employer funded health insurance to spread like wildfire. In 1940 (pre IRS incentive) about 9 percent of Americans had some form of health insurance. By 1950, more than 50 percent did. By 1960, more than two-thirds did.
While there are many problems with today’s healthcare system, one of which is a fee for service versus a fee for outcomes model, there were two really important factors that contributed to the rapid adoption of employer health insurance:
- A tight labor market and the need to get creative.
- Tax exemptions.
There are parallels to the above in our current market that signal employer funded education benefits are ripe for taking off:
- There is a tightening labor market given the supply and demand issue outlined above, which mean employers are desperately looking for creative ways to attract workers.
- There is a $5,250 tax exemption for employer-funded tuition benefits, which means that this benefit can be provided to employees with no additional tax burden within the $5,250 a year limit.
In addition, there are a number of additional trends occurring in the higher education industry that adds fuel to this emerging fire:
- Technology is making online learning increasingly accessible allowing for individuals to go to work and school simultaneously
- Companies that have already started to provide an ongoing education benefit have seen increased employee retention, leading to a positive ROI
- The skills shortage is causing employers to think through up-skilling and re-skilling efforts of their workforce, and rather than taking on this burden alone, they are looking to work with content provides (universities, boot camps, online certificate providers, etc) to help train their workforce in relevant skills for their specific needs
All of these things combined, makes tuition assistance benefits a promising solution for front-line employees.
A Learner’s Mindset
Employers are already adopting the tuition assistance model to help fuel their future of work needs.
That said, at Guild Education, in the vain of learning from history, and embracing one of our core values (#learnersmindset), we are also looking at a number of different solutions to ensure that we don’t fall into the same traps we did with the healthcare crisis we are in today.
First, we need to be judicious about ensuring education benefits are utilized to prepare students for the future of work and not just to further drive up the price of a four-year education. We plan to do this by holding educational institutions to high standards and outcomes, versus the current fee for service model that has plagued U.S. healthcare. In particular, given Guild’s business model and where we sit, we have the ability to marry employment data with student outcomes data, helping our partners understand if students are getting the credentials they need to take on new opportunities.
Second, given our close relationship with employers and understanding their future of work needs, we can coach and guide students into educational opportunities explicitly linked to the future of work to make sure there is a return on their investment.
Lastly, we can work with employers to create explicit pathways for front-line employees, so that as employees get the credentials they need, they can move into new roles that actually drive economic mobility.
All of this is to say, I think we are about to see a major shift in how education in the United States is funded. While some solutions will come from the public sector and our federal and state governments, I believe the private sector will be a key driver in changing the current educational paradigm that is currently holding our country back. If you organization is not discussing this topic at the executive level, now is the time.
About Guild
Guild’s mission is to unlock opportunities for America’s workforce through education, with a double-bottom line business model that does well by doing good. In particular, Guild provides a technology platform and tech enabled services, which helps employers offer education as a benefit to their employees. This benefit increases recruitment, retention and brand equity for employers while expanding access and lowering the cost for employees to acquire news skills, essential to the future of work.
Guild’s marketplace connects employees with a network of top public and nonprofit universities, all focused on serving working adults. Guild also provides admissions, enrollment, and retention coaching services for every student. For the employer, Guild manages all of the benefits administration for the company.
Today, over 3 million employees have access to Guild’s platform and services through employers like Discover, Chipotle Mexican Grill, Disney and Walmart. Guild is headquartered in Downtown Denver, and has grown to over 300 employees since we started our journey in 2016.
