Starbucks tuition reimbursement expected to boost revenue for ASU

June 20, 2014

Moody's Financial Ratio Analysis

Starbucks recently announced that it will make it possible for thousands of its part- and full-time U.S. employees to complete a college degree online at Arizona State University. Starbucks says that this is a unique collaboration that allows employees to finish their bachelor’s degrees with full tuition reimbursement. ASU has a successful online education program.

Starbucks wrote glowingly about ASU:

It is ranked the second most innovative school in the country by U.S. News & World Report and ranks 5th in the nation in producing the best-qualified graduates, according to a Wall Street Journal survey of campus recruiters. Today, almost half of college students in the U.S. drop out before finishing a bachelor’s degree while nearly half of all ASU Online students graduate in under three years.

Moody’s writes about the tuition deal with ASU, which is rates Aa3 (8.5):

Starbucks Corporation is rated A3 [7] stable with brand strength as a key credit factor and has approximately 135,000 employees across the United States.

With potential students located across the 50 states, the Starbucks program will significantly improve brand awareness in markets that ASU has not previously penetrated with its core programs. Ultimately, this should lead to strengthened student demand for ASU’s core and online programs.

ASU is now generating about 10 percent of its tuition revenues from online enrollment. Moody’s says that the additional revenue generated by Starbucks enrollees is expected to outweigh the costs of financial aid that ASU will offer to the Starbucks students. Moody’s wrote:

ASU has committed to offer scholarships of $2,420 per semester to juniors and seniors and $1,267 for underclassmen based on enrollment in 12 credit hours. This financial aid package is worth approximately 40 percent to upperclassmen and 20 percent to freshmen and sophomores, based on an estimated cost of $6,050 per semester (12 credits of lower cost degrees), and reflects delivery of a large number of students supported by a significant employer benefit. Even with this contribution, the university’s already established economies of scale and cost containment efforts should allow it to yield positive net revenues.

This may represent the first bulk tuition discount in U.S. higher education. It may also be a giant leaping-off point for online education. Moody’s:

The Starbucks-ASU program’s requirement to have completed the freshman and sophomore year to earn full tuition reimbursement, the student upfront paying for credits only to be reimbursed, and needing to remain employed for 20 hours a week, will result in a more limited but motivated applicant pool likely to complete a degree if enrolled. Broader evidence of successful degree completion will further bolster acceptance of online programs as a viable education alternative.

Kudos to Starbucks for offering this innovative benefit to its employees.

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