Are Taxpayers Subsidizing Starbucks College PR?
Starbucks has earned adulation in the press and praise from the Obama administration for its new program aiming to help its employees earn college degrees. But a close look at the details of the program suggests that Starbucks is relying on U.S. taxpayers to foot the vast majority of the bill for these degrees, even as it collects all the praise.
The Starbucks College Achievement Plan, announced last year and expanded in April, is an exclusive partnership with the online degree program of Arizona State University (ASU), which pledges to provide four years of tuition-free education to any Starbucks employee working at least 20 hours a week.
The program has inspired many imitators. Chrysler has created a similar program for its dealerships, offering free tuition at the for-profit school Strayer University; and Chipotle and McDonalds have announced expanded tuition programs as well. Starbucks’ position as the first major actor in this trend, however, has attracted the most attention and praise, with several media outlets suggesting Starbucks is covering the entire cost of college education for employees.
USA Today, for instance, has said that Starbucks is covering the “entire cost” of college for employees. In its own press releases, often quoted uncritically by the media, Starbucks typically talks about “full tuition coverage,” as though it is covering the entire cost itself.
The reality, however, is more nuanced, and reveals that Starbucks is counting on taxpayers to shoulder most of the cost of getting degrees for its students.
Starbucks has said that it wants to have 25,000 employees obtain degrees through its program by 2025. There is no fixed tuition rate for those attending ASU Online, with individual credits priced between $480 and $543, but according to USA Today, costs average about $15,000 a year and $60,000 for a four-year degree. Multiplied that by Starbucks’ 25,000 intended graduates, and if the company was truly paying for everything it would be covering a bill of some $1.5 billion, which will surge even higher due to inevitable tuition increases (just two months ago, ASU Online hiked tuition two percent).
But Starbucks is only budgeting $250 million for the first 10 years of the program, which is less than 17 percent of that estimated price tag. The difference of about $1.25 billion will have to be made up elsewhere, and the only obvious source is taxpayers.
First, ASU is granting a huge discount to Starbucks in return for funneling all program participants through the school. Specifically, every Starbucks employee who enrolls receives a College Achievement Plan Scholarship worth 42 percent of tuition. While Starbucks initially suggested this scholarship was partly an “investment” from them, when asked directly it has admitted the scholarship is paid for entirely by ASU, and by extension Arizona taxpayers. That discount amounts to a $630 million subsidy from Arizona taxpayers– roughly two and a half times what Starbucks is putting up.
In addition, every participant in the program is required to use Free Application for Federal Student Aid (FAFSA) to apply for federal aid such as Pell Grants, and they are also told to meet with a financial adviser to seek out other state and federal scholarships they could potentially qualify for.
Just how big of a Pell Grant can Starbucks employees expect to get? The government’s FAFSA4caster tool provides a clue. The average Starbucks barista earns about $10 an hour ($20,000, working full-time). If the prospective student is 24 or older (the average Starbucks employee is about 25), they can apply for a Pell grant without considering their parents’ income, and are estimated to receive the maximum $5,775 annual grant, which adds up to $23,100 over four years. The company’s thousands of part-time employees who earn less would obviously also qualify for the maximum. Employees age 23 or younger have to consider their parents incomes, but as long as their parents make under $50,000 a year, they too can qualify for thousands of dollars in grants.
If 25,000 program graduates are able to manage even a $5,000 annual average for their Pell grants over four years, it would add up to $500 million– over twice Starbucks’ contribution.
Running all the numbers, then, reveals that Starbucks is likely playing third fiddle at best in its much-hyped tuition program.
Starbucks did not respond to request for comment.
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