Hello WSO -
Can anyone out there share common clawback structures for employer-sponsored Masters degrees?
I have been accepted to a local program and my manager(s) are working on a proposal. Their initial proposal is a 1 year clawback period upon completion of the degree. The degree would take 2 years (I'll be doing the degree part-time and continue to work at my current role) so it would effectively be 3 years of clawback.
Is it unheard of to have the cost begin to amortize when I start the degree since I would still be working full-time?
Thanks in advance.
I hate to say it, but it depends on the company. However, a 1 Year clawback upon completion of the degree sounds more than reasonable. I assume that they are treating the three years as a forgivable loan or a retention loan and may, in fact, be amortizing it 1/3 of the value per year. Again, the terms of the loan are going to detail how they treat the forgiveness aspect. However, everything depends on the language of the contract, so any typical structures may or may not be used. Ultimately, there are four basic cases you need to consider at the end of the day. Essentially, what can possibly happen that would affect the loan repayment, if anything.
Assume one of the following four scenarios happens over the next three years:
In the first case, I highly doubt you will have to repay the outstanding balance of the loan. In this case, more often than not, the employer will let you off the hook and keep the tax deduction. I mean, being laid off through no fault of your own often does not breach the contract so you usually end up in the clear.
In the second case, depending on the structure of the agreement, you will be required to pay back some or all of the loan. There may also be tax consequences if the employer is taking the tax deduction. Say you get terminated after year 1, you may only be on the hook for what was spent, whereas in year two or three, it could be the full amount of the loan. This is going to be specific to the loan agreement. However, you get the idea.
In the third case, this can get tricky. For example, if you're asked to relocate but can't for whatever reason, that may not be a voluntary separation even though you leave and may be able to get the tuition reimbursement waived. However, leaving the company for, say, another job, may require you to pay back the loan based on the terms of the agreement. This is the hardest one to really predict because there are hundreds of little details that would affect the outcome of this particular case. The nutshell answer though is that this one will require a lawyer to look at.
The final case is the easiest. Nothing happens. Your loan is forgiven. In three years, you are free to do what you want.
But that's basically what you need to worry about for the loan.
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