Why Starbucks Is Paying for Employees' College Educations

Starbucks (SBUX 1.00%) has always treated its employees better than most companies in the food service industry. 

Its latest move might make health insurance for part-time workers and above-average pay look minor in comparison. The coffee giant has offered its employees ("partners" in Starbucks speak) a partially free college education. The new program, announced Monday, is called the Starbucks College Achievement Plan and it offers part-time and full-time employees of the chain full tuition reimbursement on courses up to and including completion of a bachelor's degree through an online partnership with Arizona State University. 

More than just a fringe benefit like, say, free coffee or a bonus for being employee of the month, this new deal makes getting a college education possible for people who might not have been able to pursue one. It also presents a realistic alternative for students who might otherwise would have earned a degree ... and a mountain of debt.

By offering this perk Starbucks not only became a more attractive place to work, it might have changed how higher education works in the United States. Online learning has changed the equation by offering students an alternative to traditional education. Now, Starbucks may be paving the way for businesses to partner with colleges and universities to make college affordable for everyone.

What exactly is Starbucks doing?

Starbucks employees based in the U.S. working 20 hours per week at any company-operated store (including Teavana, La Boulange, Evolution Fresh, and Seattle's Best Coffee stores) may choose from more than 40 online undergraduate degree programs taught by ASU's faculty. Courses of study offered include electrical engineering, education, business, and retail management. Partners admitted to ASU as a junior or senior will earn full tuition reimbursement for each semester of full-time coursework they complete toward a bachelor's degree. Freshmen and sophomores will be eligible for a partial tuition scholarship and need-based financial aid for two years of full-time study. Partners will have no commitment to remain at the company past graduation.

"In the last few years, we have seen the fracturing of the American Dream. There's no doubt, the inequality within the country has created a situation where many Americans are being left behind. The question for all of us is, should we accept that, or should we try and do something about it," said CEO Howard Schultz.  "Supporting our partners' ambitions is the very best investment Starbucks can make." 

The program is targeted at nearly 50% of college students in the United States today who fail to complete their degrees due to mounting debt, a tenuous work-life balance, and a lack of support. 

Why does this make business sense? 

While part of Starbucks' logic for treating employees well is certainly because it's the right thing to do, there is also business logic in the policy. Starbucks baristas are the face of the company. They interact with customers and, unlike fast food workers, where much of the work is heavily regimented, they are trained, skilled workers. 

Starbucks invests heavily in its baristas, training each one for an average of 30 hours on everything from the difference between a cappuccino and a latte to the intricacies of making a Frappuccino. The chain has a complicated menu made even more complicated by the amount of customization offered. Teaching a barista to make a perfect half caf, no foam, soy Cinnamon Dolce Latte costs the chain money and minimizing employee turnover has a significant impact on the bottom line.

It costs Starbucks around $3,000 to train an employee, according to the Organics Consumer Association. Offering health care to part-time workers, the activist group wrote, helped the chain keep yearly employee turnover to around 65% -- well below traditional fast food restaurants, which can run from 150% to 400% yearly employee churn. 

Helping employees pay for the first two years of college then paying entirely for the next two should help Starbucks attract better employees and hold onto them longer. 

Will other companies follow suit?

Other dining chains may not need to follow suit but there are many retailers who might benefit from pursuing a similar model.

Imagine how much more attractive working at Target or Best Buy would become if either offered tuition a path to a loan-free degree? Even if those stores required a period of employment post-graduation the offer would be tempting. That would lead to a higher class of employee that stays longer. It would also give the company an increased pool of educated workers trained in its systems for future management opportunities.

In offering this employee incentive Starbucks has given itself a huge hiring advantage. As the economy improves and the demand for trainable workers grows, other companies will have to either follow suit or offer higher wages to compete. Until that happens Starbucks should get its pick of the young labor force, and older workers looking to finish degrees.