> If they keep charging everyone else and make education free for employees, the tuition they would have paid becomes taxable income.

Is this really true though? Some universities charge in-state and out-of-state students different tuition rates, but the in-state students aren't liable for paying taxes on the difference between the tuition rates. It seems like those are just different degrees of the same thing so the same rules should apply. Perhaps the distinction is that the schools who differentiate between in-state and out-of-state students are state schools and thus play by slightly different rules?