United States General Accounting Office

GAO Report to Congressional Requesters

February 1995 UNIVERSITY

RESEARCH

U.S. Reimbursement of

Tuition Costs for

University Employee

Family Members

GAO/NSIAD-95-19

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-257828 

February 15, 1995

The Honorable Tom Harkin

Ranking Minority Member,

Subcommittee on Labor, Health

 and Human Services, Education,

 and Related Agencies

Committee on Appropriations

United States Senate

The Honorable John Dingell

Ranking Minority Member

Committee on Commerce

House of Representatives

As requested, we reviewed tuition assistance costs being charged to the

government for family members of employees of educational institutions

performing government-funded research. Our objectives were to

(1) compare U.S. policies for paying these expenses with U.S. policies for

paying similar expenses incurred by commercial businesses, (2) obtain

information on the nature and extent of tuition assistance, (3) ascertain

the costs to the U.S. government and the federal agencies involved, and

(4) determine the salary levels of the employees whose families are

receiving tuition assistance.

Results in Brief Under existing Office of Management and Budget (OMB) guidance,

educational institutions performing government research contracts and

grants are allowed to recover the cost of tuition assistance provided to

employee family members; however, under the Federal Acquisition

Regulation (FAR),1

 commercial concerns are specifically prohibited from

doing so.

A large number of educational institutions provide, as part of an

employee’s compensation, tuition assistance to the employee’s family

members and charge these costs to federal research contracts and grants.

Of 65 educational institutions surveyed by the Department of Health and

1

The FAR contains uniform guidance for the procurement of supplies and services by federal executive

agencies and includes cost principles on the allowability of costs charged to government contracts by

commercial concerns.

Page 1 GAO/NSIAD-95-19 University Research
B-257828 

Human Services (HHS) and the Office of Naval Research (ONR),2 51

universities, or about 78 percent, provided such tuition assistance.

To obtain insight into the extent of the programs, we visited 5 of the top 10

universities with the most federal government-funded contracts and grants

during fiscal year 1992. Over a 3-year period (1991-93), four of the five

universities we visited had recorded costs of about $53 million for tuition

assistance to employee family members and charged about $17 million, or

32 percent of these costs, to federal research contracts and grants. These

research contracts and grants were received from various federal

agencies, including the Departments of Defense, Energy, HHS, and

Education.

The universities we visited have widely different program benefits and

eligibility requirements. For example, one offers no benefits, while another

provides tuition assistance for nursery through graduate school. Another

university provides up to one-half its tuition if a dependent attends the

university or another accredited university but pays up to its full tuition

when both spouses are employed by the university. Some of the

universities offer greater tuition assistance benefits to faculty and senior

administrative employees; however, most employees are eligible to receive

some amount of tuition assistance for their family members. Of the 2,628

employees receiving tuition assistance benefits at 4 universities during

1993, 45 percent had annual salaries of $50,000 or less, 34 percent had

annual salaries of between $50,000 and $100,000, and 21 percent had

annual salaries of over $100,000. During 1993, the four universities that

provided tuition assistance benefits to dependents were awarded federal

research contracts and grants totaling $2.5 billion.

Comparison of

Allowability Under

OMB Guidance and

the FAR

OMB Circular A-213 provides that tuition assistance for family members of

employees of educational institutions is an allowable fringe benefit

chargeable to government research contracts and grants, provided the

benefits are granted in accordance with established institutional policies

and are distributed equitably to all institutional activities. This particular

fringe benefit is common among educational institutions and has been an

allowable charge to federal research contracts and grants for years.

2

HHS and ONR are responsible for auditing and establishing overhead rates for most educational

institutions.

3

OMB A-21 establishes cost principles that educational institutions are required to follow in

determining allowable costs and methods of allocating such costs to federally funded research

contracts and grants.

Page 2 GAO/NSIAD-95-19 University Research
B-257828 

In contrast, the FAR provides that tuition, textbooks, and similar benefits

provided by commercial concerns for other than bona fide employees are

expressly unallowable and cannot be charged to the government, and it

specifically makes unallowable the costs of college plans for employee

dependents. However, this was not always the case. Before October 28,

1977, some commercial contractors claimed tuition costs for employee

family members as an allowable compensation fringe benefit. To counter

this trend and to explicitly state what seemed to be existing policy

concerning the allowability of education payments by commercial

contractors, a procurement regulation review committee revised the

regulation to make tuition costs for contractor employee family members

expressly unallowable.

In its deliberations, the committee cited several reasons for its decision. It

said it had historically accepted educational costs for bona fide employees

as allowable because training improved the vocational effectiveness of

employees, which benefited both the contractor and the government. The

committee believed, however, that there was no benefit to the government

from subsidizing tuition costs of employee family members. It also stated

that tuition costs for employee dependents are by their very nature

discriminatory and potentially counterproductive because childless or

unmarried employees might resent the program.

At the same time, the committee recognized that the regulations

specifically allowed tuition assistance reimbursement for family members

of university employees as an acceptable staff benefit. According to the

committee, academic salaries were generally lower than the salaries paid

by commercial and not-for-profit concerns, and tuition assistance was just

one of a number of benefits made available to university staff to

compensate for the lower salaries. The committee observed that the

existence of these benefits did not require that commercial firms provide

the same benefits in addition to higher salaries.

Tuition Assistance

Programs Are a

Common Practice

Among Many

Universities

Tuition assistance for employee family members is a common practice at

many U.S. universities and has been for many years. At our request, HHS

and ONR surveyed 65 educational institutions to determine how many

currently provide that benefit. Of the 65 universities surveyed, 51, or about

78 percent, provide it. The 65 universities consist of 33 public and 32

private institutions. Of the 33 public institutions, 20, or about 61 percent,

provide tuition assistance to employee family members. Of the 32 private

institutions, 31, or about 97 percent, provide it.

Page 3 GAO/NSIAD-95-19 University Research
B-257828 

For the 29 universities that ONR oversees, 23, or about 79 percent, provide

tuition assistance to employee family members. Of these 23, 10 limit the

benefits to employee dependents, 12 extend the benefits to employee

spouses and dependents, and 1 limits the benefits to employee spouses.

For the 36 universities surveyed by HHS, 28, or about 78 percent, provide

tuition assistance to employee family members. Of these 28 universities, 6

limit the benefits to employee dependents, and 22 extend the benefits to

spouses and dependents.

While these results cannot be generalized to all universities, they show

that tuition assistance for employee family members is a common practice

and is more common with private than public universities.

Tuition Assistance

Programs Vary Widely

Four of the five universities we visited offer different types of tuition

assistance for family members of employees of the universities and their

research laboratories. The University of California does not provide tuition

assistance benefits to employee dependents because, according to the

university, its charges are low compared with other educational

institutions. The universities providing the benefit limit their assistance

under these programs to tuition cost and do not provide assistance for

such items as room and board, books, and laboratory fees. Table 1

summarizes the tuition assistance programs available to employee

dependents and spouses. Specifics of the programs are discussed

following the table.

Page 4 GAO/NSIAD-95-19 University Research
B-257828 

Table 1: General Description of Tuition Assistance Programs Provided by Five Universities

Eligible

participant

Tuition assistance provided

Institution Dependent Spouse

Primary/

secondary Undergraduate Graduate

Undergraduate

assistance at

other institutions

Massachusetts Institute of

Technology (including

Lincoln Laboratory)

Yes No No Yes Yes Yes

Stanford University

(including Stanford Linear

Accelerator Center)

Yes No No Yes No Yes

University of California (including

Los Alamos National Laboratory,

Lawrence Livermore National

Laboratory, and Lawrence

Berkeley Laboratorya)

Tuition assistance not offered

Johns Hopkins University (including

Applied Physics Laboratory)

Yes Yes No Yes Yes Yes

University of Chicago (including

Argonne National Laboratory)

Yes Yes Yes Yes Yesb Yes

aThese three laboratories are federally funded research and development centers (FFRDC)

operated by the university.

bBenefit is available to spouses only.

Programs for Dependents Four universities provide tuition assistance to employee dependents for

undergraduate studies at the university where the employee works. The

University of California does not.

In addition, four universities provide tuition assistance to dependents for

undergraduate studies at other accredited educational institutions.

Three—Massachusetts Institute of Technology (MIT), Stanford, and Johns

Hopkins—limit their financial assistance to one-half their annual tuition.

The University of Chicago provides assistance up to its full annual tuition,

depending on the position of the employee.

Stanford and the University of Chicago do not provide assistance to

employee dependents for graduate studies. MIT and Johns Hopkins provide

limited assistance for graduate studies. MIT has a program in which

dependents can receive tuition assistance of up to one-half the tuition for

graduate studies taken only at MIT. Johns Hopkins has a program in which

dependents can take up to 18 hours of continuing education courses a year

at the university and receive assistance of up to one-half the tuition.

Page 5 GAO/NSIAD-95-19 University Research
B-257828 

The University of Chicago has a unique program that provides one-half of

the tuition for employee dependents to attend the nursery, kindergarten,

elementary, and high schools it operates. During 1993, the annual student

tuition costs of these schools ranged from about $4,700 to $9,300,

depending on the grade level. None of the other universities we visited

provide tuition assistance below the undergraduate level. University of

Chicago officials pointed out that this program is part of the university’s

commitment to maintaining a high quality of life for the surrounding

community. These officials also stated the tuition assistance encourages

faculty and staff with young children to reside in the university

neighborhood.

All four universities have eligibility requirements for tuition assistance.

Requirements include the employee’s position, employment status (full

time or part time), length of employment with the university, and a number

of other requirements. At two universities, the amount of assistance

provided depended on the date of employment.

Programs for Spouses MIT and Stanford do not provide tuition assistance to employee spouses for

either undergraduate or graduate studies, and Johns Hopkins and the

University of Chicago provide limited assistance. Johns Hopkins has a

program in which spouses can take up to 18 hours of continuing education

courses a year at the university and receive assistance of up to one-half

their tuition. At the University of Chicago, employee spouses and same-sex

university-registered domestic partners can attend graduate studies at the

university and receive assistance of one-half the tuition costs.

Federal Share of

Tuition Assistance

Costs

Part of the cost of the universities’ tuition assistance programs is charged

to federal research contracts and grants. Four of the five universities we

visited include tuition assistance in their employee fringe benefit

packages. If the employee worked directly on a government research

contract or grant, the employee’s salary and fringe benefit costs were

charged directly to that particular research contract or grant. In those

cases in which an employee’s work could not be directly identified with a

specific research contract or grant, the salary and fringe benefit costs were

charged to an indirect or overhead cost pool and then allocated to

government research contracts and grants in accordance with OMB

Circular A-21.

Page 6 GAO/NSIAD-95-19 University Research
B-257828 

During 1991 through 1993, four of the five universities we visited recorded

costs of $52.9 million for tuition assistance to family members and charged

about $17 million, or 32 percent of these costs, to federal research

contracts and grants. Table 2 summarizes the number of program

participants, the cost of the programs, and the estimated amount charged

to the federal government over the 3-year period for those universities.

Table 2: Tuition Assistance Program Participants and Costs for 1991 Through 1993

Number of program participants

Dollars in thousands

Institution 1991 1992 1993

Total program

costs

Estimated

government

sharea

Massachusetts Institute of Technology

(including Lincoln Laboratoryb) 694 654 591 $12,566 $7,098

Stanford University (including Stanford

Linear Accelerator Centerb) 767 683 745 10,126 3,610

Johns Hopkins University (including

Applied Physics Laboratoryc) 1,090 1,125 1,142 13,399 3,744

University of Chicagod (including 

Argonne National Laboratoryb) 839 925 983 16,842 2,461

Total 3,390 3,387 3,461 $52,933 $16,913

aThe universities provided the estimate of the government’s share of total program costs.

bThese research centers and laboratories are FFRDCs operated by the universities. FFRDCs are

funded solely or substantially by federal agencies to meet special research and development

needs of the government.

cThe Applied Physics Laboratory is not an FFRDC; however, it is operated almost exclusively for

naval research projects and programs. Johns Hopkins operates the laboratory under the FAR

cost principles, which state that tuition costs for family members of employees are expressly

unallowable. The estimated government share represents only the portion of program costs

attributable to the University.

dThe University of Chicago operates the Argonne National Laboratory for the Department of

Energy. It does not charge tuition assistance costs for Argonne employees to the contract

because such costs were not identified as allowable costs in the contract with the Department.

Of the $16.9 million estimated government share of these costs, $13 million

was charged as a direct cost to federal research grants and contracts,4

 and

the remaining $3.9 million was charged through indirect costs. In cases in

which dependents and spouses attended the university where the

employees worked, the four universities charged the school’s full tuition

assistance benefit to the fringe benefit pool. For example, MIT would have

charged $18,000 to the fringe benefit pool for a child of a tenured faculty

4

This amount does not include overhead charges applied to direct costs.

Page 7 GAO/NSIAD-95-19 University Research
B-257828 

member attending the university during 1993. In cases in which employee

dependents attend other accredited educational institutions, the paying

universities charge tuition costs up to the limits provided by their

respective programs.

Federal Agencies

Award Substantial

Amounts of Research

to Universities

A number of federal agencies have awarded substantial amounts of

research contracts and grants to the institutions we visited. Table 3

summarizes the value of research contracts and grants being carried out

by the four universities that charged tuition assistance to the government

during 1993, the year for which data was most readily available.

Table 3: Value of Federal Research Contracts and Grants Awarded During 1993

Research contracts and grants

Dollars in millions

MIT Johns Hopkins Stanford

University of

Chicago Total

Department of Defense $375.3 $431.8 $42.4 $2.5 $852.0

Department of Health and

Human Services 64.9 253.0 128.7 73.3 519.9

Department of Energy 57.3 2.2 166.5 570.7 796.7

National Aeronautical and

Space Administration 34.0 9.9 54.9 7.1 105.9

National Science Foundation 38.1 11.8 29.6 24.4 103.9

Department of Education 0.5 7.1 6.7 7.1 21.4

Other agencies 52.4 40.2 10.6 2.4 105.6

Total $622.5 $756.0 $439.4 $687.5 $2,505.4

Universities’ Views on

the Value of Tuition

Assistance Programs

University officials advised us that they consider the continued

allowability of tuition assistance for employee dependents to be an

important part of their employee compensation packages. They pointed

out that tuition assistance is a common practice among universities and is

a cost-effective means to recruit and retain high-quality employees. These

officials also said that they should be allowed the flexibility to manage

their overall compensation programs so long as total compensation was a

reasonable amount. In this regard, university officials commented that

salaries at educational institutions were lower than those in the

commercial sector for comparable positions.

Page 8 GAO/NSIAD-95-19 University Research
B-257828 

Further, university officials pointed out that there are a number of other

differences between universities and commercial firms with respect to

cost allowability and that commercial concerns are reimbursed under the

FAR for some costs for which educational institutions are not reimbursed

under OMB Circular A-21. The officials said such differences reflect a

fundamental distinction in the missions and operations of educational

institutions compared with commercial concerns. One university official

commented that, because of these distinctions, every cost that is available

or prohibited to one type of organization should not have to be identically

treated by the other.

Salary Ranges of

Employees Receiving

Tuition Assistance

We obtained the current salaries of employees at the four universities that

offer tuition assistance programs. Table 4 summarizes the employees’

salary ranges.

Table 4: Salary Ranges of Employees

Receiving Benefits Under Tuition

Assistance Programs Salary range

Number of

employees Percentage

Less than $25,001 350 13.3

$25,001 to $50,000 827 31.5

$50,001 to $75,000 493 18.8

$75,001 to $100,000 407 15.5

$100,001 to $125,000 254 9.7

$125,001 to $150,000 149 5.7

$150,001 to $175,000 66 2.5

$175,001 to $200,000 33 1.3

$200,001 to $225,000 16 0.6

$225,001 to $250,000 7 0.3

Over $250,000 26 1.0

Total 2,628 100a

aNumbers do not add because of rounding.

Of the 2,628 employees receiving benefits, 45 percent were earning annual

salaries of $50,000 or less, 34 percent were earning between $50,000 and

$100,000, and 21 percent were earning over $100,000.

Page 9 GAO/NSIAD-95-19 University Research
B-257828 

We also observed that Johns Hopkins University provides full tuition when

both spouses are employed by the university. Normally, the university

provides up to one-half its tuition if a dependent attends the university or

another accredited university. However, if both spouses work at the

university, each employee receives tuition assistance such that together

they receive assistance up to the university’s full tuition cost. We identified

41 instances in 1993 in which both spouses worked at the university and

together received tuition assistance up to the university’s full tuition for a

total of 51 dependents.

Agency Comments In commenting on a draft of this report, OMB stated that it had no reason to

question the report’s factual accuracy and that it would develop policy

options for reimbursing tuition assistance to dependents of university

employees. On February 6, 1995, OMB published in the Federal Register a

proposed change to OMB Circular A-21 to make charges for tuition benefits

for any person other than the employee unallowable. The proposed change

is to take effect for educational institution’s fiscal years beginning after

September 30, 1997.

Scope and

Methodology

We compared the allowability of tuition assistance under OMB Circular

A-21 with the allowability of such costs under the FAR. We discussed the

basis for the costs being allowable to educational institutions with OMB,

HHS, and ONR officials. We researched the basis of the decision to make

these costs expressly unallowable to commercial concerns. In addition, we

visited 5 of the top 10 universities with the most government contracts and

grants during fiscal year 1992 and obtained information about their tuition

assistance programs for employee family members, the number of family

members participating in the programs, the total costs of the programs,

the estimated amount of the cost reimbursed by the federal government,

and other related information about the programs. We also obtained

information from HHS and ONR on tuition assistance programs provided by

other educational institutions to determine how widespread this practice

was within the university community. We discussed various aspects of

tuition assistance with OMB, HHS, ONR, and university officials. Finally, we

obtained written comments on a draft of this report from the five

universities and OMB and incorporated their comments as appropriate. We

conducted our review from October 1993 to May 1994 in accordance with

generally accepted auditing standards.

Page 10 GAO/NSIAD-95-19 University Research
B-257828 

Unless you publicly announce its contents earlier, we plan no further

distribution of this report until 30 days from its issue date. At that time, we

will send copies to the Chairman, Subcommittee on Labor, Health and

Human Services, Education, and Related Agencies, Senate Committee on

Appropriations; the Chairman, House Committee on Energy; the Secretary

of HHS; the Director of OMB; the Chief of Naval Research; the universities

we visited; and other interested congressional committees. Copies will

also be made available to others upon request.

Please contact me at (202) 512-4587 if you or your staff have any questions

concerning this report. Major contributors to this report are listed in

appendix II.

David E. Cooper

Director, Acquisition Policy, Technology,

 and Competitiveness Issues

Page 11 GAO/NSIAD-95-19 University Research
Appendix I 

Comments From the Office of Management

and Budget

Page 12 GAO/NSIAD-95-19 University Research
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Charles W. Thompson

Atlanta Regional

Office

George C. Burdette

Kelly A. Davis

(705036) Page 13 GAO/NSIAD-95-19 University Research
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