A recent news story described how an employee at Boston University no longer worries about the cost of sending his two children to college because his employer picks up the tab. Moreover, this perquisite is even better than it first appears, because it is tax free. He estimates he would have to earn \($300,000\) in pretax income to cover his kids’

tuition. Many US colleges and universities subsidize the education cost of employees’

children, and sometimes spouses. The tuition benefit policy varies widely across colleges and universities. Some only offer free tuition for employee children attending that university. Some give cash, up to some limit that can be used to pay tuition anywhere, including the employee’s own institution.

Colleges argue they need the benefit to retain and recruit valuable employees who might otherwise be lured to competing institutions or more lucrative jobs outside of higher education. Nonetheless, the cost of the tuition benefit can run into the tens of millions of dollars, leading some universities to scale back their tuition benefit programs. One university official claimed, “It cost our university \($15\) million last year to send employees’ children to our university and other schools.” A few universities actually eliminated their tuition benefit. But the big advantage of the tuition program remains is its tax-free advantage.

a. Critically evaluate the statement, “It cost our university \($15\) million last year to send employees’ children to our university and other schools.”

b. Do you think that it was a wise decision for some schools to cut its tuition benefits for employee children?