Paying for business school
Financial Aid decisions for the HBS Class of 2015 are rolling out and I want to offer a firsthand perspective of one Marine’s experience financing a graduate degree. There are three main reasons why I want to share this experience.
- I want to debunk a prevalent myth that scares many veterans from pursuing post-graduate degrees; the myth that going to graduate school will cause you to go broke. I’ll in fact show how it’s possible to obtain an MBA, DEBT FREE.
- I want to measure how well I’ve prepared for this expenditure. I have known that I wanted to pursue an MBA, ever since I found this blog, over 30 months ago. Did I use that time wisely to save / earn funds accordingly? My hope is that the veterans, who have significant time to prepare for this journey, say greater than 12 months, will financially prepare as vigoursly as they will academically (GMAT) prepare (increased savings, decrease spending, establish passive income, increase GI Bill eligibility, etc).
- I want to discuss the 2013-2014 Post 9/11 GI Bill Benefits.
So first, I will say that this budget is extremely rudimentary, in an effort to have general application. Also, I’m only calculating a budget over nine months (August-May), as there will be high variance concerning income/expenses over the summer months (internships at start-ups vs. major firms, travel, etc).
Second, I’ll offer a little background that establishes what my income and expenses will be over the next two years. I’m a Marine Pilot that recently transitioned from active duty (nine years of service) to the Marine Reserves. I have 100% Post 9/11 GI bill eligibility and am married with one child. I did a slightly less than average job saving over the past nine years, but I am 100% debt free (save a mortgage on a rental property)
Expenses
To estimate the cost of an MBA, I used my particular school’s MBA Budget page. Almost every major institution will offer this as a tool for applicants.
I haven’t been married (with child) for the past two and a half years that I’ve been planning to attend b-school, but my wife and I were seriously dating so it was never out of the question. So when I was calculating the expense of an MBA, I used the school’s figures for a married student with one child. For the HBS, this figure is $118,300.
For the sake of simplicity, I will subtract the “Board, Personal, Other” entry. This is food, grad school recreational travel, automotive, and other expenses. Maybe it’s an accurate estimate, but there is just too much variability to accurately treat this category. For example, my desire to graduate DEBT FREE, to spend time with my family, to tithe faithfully, and to not drive a car to / from school will all determine my spending choices. This category will be widely based on your specific worldview.
I also subtracted the health insurance premiums for both my family and me, as I’ll be purchasing healthcare from the Defense Department (TRICARE Reserve). This will cost $350 per month for medical and dental coverage for the entire family. So over the nine-month school year, this totals $3,150, as opposed to $9,818 in premiums offered by the school. I’m discussing health insurance, not only because I’m going to school in Massachusetts, where health insurance is required by law (of course, by January 2014, it will be required in all 50 states), but also because for anyone with a family, this will be a major expense.
For “Room and Utilities”, I increased the monthly expense to $2,850 since that’s the market price of the places we are considering resulting in a total of $94,508.
Income
The majority of my income will come from Post 9/11 GI Bill benefits. For the 2013-2014 academic year, the national maximum GI Bill allowance for tuition and fees is $19,198.31. In addition, the VA and HBS have agreed upon a Yellow Ribbon contribution of $12,000 each ($24,000 total); the GI Bill’s basic allowance for housing (again nine months only) totals $22,068. Also, if I can manage to drill with the Reserves, three days a month, I will earn $1,000 per month (after taxes).
Aside: The Marines are currently awarding Reserve bonuses from $20,000 - $45,000 for signing a three year contract. While the pros and cons of serving in the Reserves while in grad school aren’t within the scope of this discussion, it was enough for me to take a second look. I didn’t include it in my budget, as I’m still undecided as to whether I will commit to a three-year contract.
Income | Expenses | |||
GI Bill Tuition/Books | $20,198 | Tuition | $56,175 | |
Yellow Ribbon | $24,000 | Student Health Fee | $958 | |
Reserves | $9,000 | Program Support Fee | $7,025 | |
GI Bill Housing (9 mon) | $22,068 | Room & Utilities (9 mon) | $25,650 | |
HBS Fellowship | $7,500 | Health Insurance (9 mon) | $3,150 | |
Analytics Course | $1,550 | |||
TOTAL | $82,766 | TOTAL | $94,508 |
Lastly, I received a $7,500 fellowship from HBS. For those considering applying to HBS, remember that it is a need-based financial aid institution that considers your total financial outlook over the past three years, to include your/spouse’s income, expenses, investments, financial hardships, etc. At the income level of a nine-year Marine Pilot, I consider this fellowship to be more than generous.
The Delta
One thing I didn’t know was that you have to settle your bill before you can step foot in one classroom. So totaling all the expenses, except health insurance and housing, and subtracting the GI Bill benefits that get paid to the school and the HBS fellowship, I will owe about $14,000 for the first year of school.
Summary
First and foremost, “the delta” is a small number, and I’m fortunate to be in this financial position.
Second, there are myriad of methods to cover this expense: loans (educational or personal), savings, income (active and passive), investments, etc. The methods are only limited by the financial creativity of the student. [Legal note: I’m not advocating, “creative accounting” in the most nefarious sense.] Creativity in this case refers to that possessed by entrepreneurs, and undoubtedly possessed my many veterans. If you can generate even $200 per month in passive income, that’s $2400 less per year you’ll have to borrow or withdraw from savings.
Lastly, I know every case is different and more complex than the above discussion. I like to again point out that in my budget, my family hasn’t eaten, traveled, or paid any student club membership dues. The budget deals with the large costs of an MBA, in isolation, not considering current liquidity or prior debts. I haven’t discussed if my wife, a Physician Assistant, will work (and we’d pay for child care) or if she’ll stay home to raise our son (most likely), or the fact that we’re selling one car to become a single car family, or my rental property in North Carolina. Most veterans in my class will have less than 100% Post 9/11 GI Bill eligibility, and will have earned less over the last three years (or salary scale is public record). This will make them eligible for more financial aid.
Though this is an extremely elementary budget case (according to which, my family and I aren’t eating), I hope to inspire some forethought concerning the financial aspect of pursuing a graduate degree. If you aren’t going to generate passive income, maybe it’s time to increase your savings allotment. Going out less will not only help your wallet, but may help your GMAT score.
Overall, there are plenty of reasons to minimize your debt load coming out of school. For me, aside from the principle of being a more free man, I want to be an entrepreneur, and open my own firm, directly following b-school. So I’m eliminating all common excuses!
MtB Blog Comments:
MtB Blog Comments:
- The average job signing bonus out of a school like HBS is around $25,000
- The expected first year compensation (including all bonuses) can be close to $200k/year
- Therefore, even if you graduate with $50,000 in debt for example, you can pay that off after working for just a few months if you really wanted to. Hardly anything to fear or use as an excuse not to go to graduate school. Of course, if you plan to bootstrap and start your own business, trying to graduate debt free and maintaining tighter fiscal control during school is strongly advised. Keep in mind that startups raise funding as well... military startups coming out of HBS include Troopswap.com, which has raised nearly $6M and came from the Class of 2010 and RallyPoint.com, which raised $1.7M so far, and came from the Class of 2011. Even Military.com came out of HBS in the late 1990s.
- Most students end up spending a lot more money at business school to participate in far flung social events all over the world. See here for a previous post on how one's perspective may evolve on Time and Money -- of course -- nothing is universal.
Written by Ahron (ahron@MilitaryToBusiness.com), a transitioning Marine Officer starting HBS in the Fall of 2013
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