Saturday, June 25, 2011

Financing Business School

As I’ve mentioned before, a business school education is, at its root level, an investment. Those looking to pursue an MBA do so because they believe that the long-term value of the education is far greater than the up-front cost. The problem is that the majority of us don’t have a couple hundred thousand dollars sitting in our bank accounts to do such a thing. How do we get past that?

Let’s start by digging into the “up-front cost” of an MBA. HBS recently released the Class of 2013 student budget which I’ve included below. This essentially represents the cost to attend HBS for one year (note that the cost for trips to China, Machu Picchu, and/or South Africa is not included). Basing our estimate on these figures alone, 2-years at business school could cost you anywhere from $165,000 - $230,000 depending on your family status. Certainly not an insignificant amount of money!

HBS MBA Class of 2013 Student Budget




Single

Married/DP

Married/DP

Married/DP

w/ One Child

w/Two Children

Tuition

$51,200

$51,200

$51,200

$51,200

University Health Services Fee*

$1,186

$3,004

$3,806

$4,210

Blue Cross/Blue Shield (12 months)**

$1,834

$4,518

$6,068

$6,846

Program Support Fee***

$6,390

$6,390

$6,390

$6,390

Room & Utilities (9 months)

$10,800

$16,362

$21,114

$21,114

Board, Personal, Other (9 months)****

$12,590

$16,326

$20,822

$27,040

Total

$84,000

$97,800

$109,400

$116,800

Additionally, it’s also important to note that these cost figures do not include the opportunity cost of attending school (namely the 2-years of foregone salary from not working). For someone leaving the military as an O-3, you can essentially add another ~$150,000 to the mix. While $380K (230 + 150) is far less than the $4 million that Bloomberg Businessweek estimates as the 20-year median cash compensation of an HBS grad, it’s still a sizeable amount – especially for someone who has been earning a military paycheck for the past 3-5 years!

So you find yourself in somewhat of a dilemma: you see the potential benefits, but are also aware that you don’t have a couple hundred thousand dollars lying around to throw toward a business school education.

Fortunately, the path to business school for people in your situation is a well beaten one. There are a number of ways – both general and veteran-specific – to reduce the actual cost to you and, with it, the amount of anxiety with which you enter business school. What cannot be defrayed is either paid for out of pocket or with student loans. Let’s discuss each of those in turn before I briefly discuss how I financed my business school education.

Military Benefits, Fellowships, & Scholarships (funding that does not require repayment)

· Military “Sponsorship” – If you decide to stay in the military, one of the many benefits available to you is 100% graduate school financing. This is referred to as “company sponsorship” on the civilian side of the fence and is a widespread practice used to further develop an organization’s human capital. I had two HBS classmates who were sponsored by their respective branches of service (one Army, the other Navy) and attended school while still on active duty. They continued to receive their military salary and basic housing allowance and walked away from HBS with both a diploma and zero student loan debt. In the Army, this option becomes available to officers who have completed their branch qualifying assignment (usually a company/battery/troop command). Having a conversation with your branch or career manager is a great first step in determining if sponsorship is right for you.

· Post 9/11 GI Bill – This is a huge benefit for veterans who have served on active duty on or after 11 September 2001. As of 1 August 2011, the GI Bill will cover up to 100% of public school in-state tuition and fees, up to $17,500 annually for private schools, and will provide a basic housing allowance stipend at the E-5 with dependent rate (about $2200 a month for the HBS zip code). Depending on the number of months of non-contractually obligated service you have under your belt, your GI Bill benefits can range from 40% (90 – 179 days of Post 9/11 active service) to 100% (greater than 1,095 days, or 3 years, of post 9/11 active service) of the maximum benefit amount. What do I mean by “non-contractually obligated service”? If you graduated from a service academy, for example, you’re contractually obligated to serve 60 months on active duty in order to fulfill your service commitment. Any months served beyond those 60 counts toward GI Bill eligibility. The same logic applies to ROTC graduates. If you attended college on a 4-year ROTC scholarship, you likely graduated with a 48-month active duty service obligation. Therefore, any active duty service beyond those 48 months would be non-contractually obligated service and would count as eligible service for the GI Bill. (Though not yet updated with the new regulations that take effect August 1st, the GI Bill benefits calculator can nonetheless be found here).

· Yellow Ribbon – Seeing as how most top-tier business schools are private institutions, and charge tuition and fees that (far) exceed the $17,500 private school ceiling discussed above, there is typically a gap between actual cost and what the veteran is eligible for with the GI Bill. The Yellow Ribbon Program exists to help close that gap. Schools choose whether to participate in the Yellow Ribbon Program and the rate at which they’re willing to contribute. The Department of Veterans Affairs (VA) then matches whatever the school contributes. Using HBS as an example:

o A veteran eligible for the maximum benefit rate under the GI Bill would receive $17,500 for tuition and fees as a result of Harvard being a private university.

o HBS, a Yellow Ribbon partner school, agrees to contribute $10,000 for up to 50 veterans each year (a list of the Yellow Ribbon partner programs and their contribution amounts can be found here).

o The VA matches HBS’s contribution of $10,000.

o The total benefit is thus $37,500, plus about $20,000 of BAH for the Boston/Cambridge zip code.

Though the annual cost to attend HBS for a year is a bit higher than the $57,500 benefit amount, the majority of the cost has been defrayed by the GI Bill/Yellow Ribbon contribution. Pretty phenomenal program if you ask me.

· Fellowships & Scholarships – Depending on the school, fellowships and scholarships are offered to students based on either need or merit, or a combination of the two. At HBS, all fellowships (pools of money available to students as a result of generous alumni donations) are entirely need based. These fellowships can range from a few thousand dollars to 100% of tuition. In addition to need based fellowships, other schools incorporate merit into their award criteria. At Wharton, for instance, students can receive full-tuition fellowships based solely on their outstanding record of academic, personal, and professional achievement. Finally, outside scholarships for which you qualify are fair game here as well. One that a few of my veteran classmates received was the Pat Tillman Military Scholarship. Definitely worth looking into.

Savings & Loans

Whatever is left over after military benefits, fellowships, and scholarships have been applied to the cost of your education is covered by you. Personal savings and family contributions are pretty self-explanatory. Graduate school loans, however, are a bit more intricate than they appear at first glance. These loans fall into two categories: GradPLUS and private loans

· GradPLUS – The GradPLUS loan is a loan from the federal government for individuals pursuing graduate education (as the name implies). It carries with it a fixed 7.9% interest rate and a 2.5% origination fee. Clearly the “fixed” nature of the loan is the most appealing aspect of the GradPLUS option. If you’re like me and expect serious inflation to take hold at some point in the near future (while I’m still repaying my student loans), the fixed rate is a pretty good deal.

· Private – During the glory days of 2004-2007, interest rates were extremely low and private loans, the soup du jour back then, were doled out in abundance. Today, they’re still available but are not nearly as ubiquitous. Although most private loans lack an origination fee, they carry with them a floating interest rate. Given the inflation discussion above, it’s definitely something to be aware of.

As for me, I ended up getting fellowship funding, received 40% GI Bill benefits for having served more than 90 days past my 5-year service obligation, and served in the National Guard throughout my 2-years at business school. So when it was all said and done, I walked away from HBS with about as much debt as I expected going in (~$120,000). Considering my family situation (married with two kids) and the fact that my wife stayed home with our daughter who was born a few months prior to business school, I’m pretty comfortable with that number.

As you continue to investigate the business school option, keep in mind that it’s easy to get overwhelmed by the cost and become immediately turned off as a result. Hopefully this sheds a bit of light on how to make pursuing an expensive but worthwhile degree work for you.

- Rob C., Guest Blogger and Co-Founder of MilitaryToBusiness: Consulting Service for Top Performers

Wednesday, June 15, 2011

"I'm getting out of the military in 2 or 3 years, and I think I want to go to b-school. What can I do now to prepare and make sure I'm competitive?"

For those of you that are asking questions like this, congratulations! You’re already ahead of the curve. Our obligated service periods have a way of flying by, and before we know it, we’re staring our transition in the face without a solid plan. This situation is avoidable. Two to three years out from separation is, in my opinion, the right time to begin reflecting on your goals, assessing your options, and positioning yourself for success.

For veterans, and for that matter, most non-traditional applicants, the path to business school is certainly not unheard of, but it’s also not laid out before us nearly as clearly as it is for some other professionals, such as consultants and bankers. In those professions, the default assumption is that high-potential individuals will jump on the MBA train with many of their peers three to four years after undergrad. Furthermore, as they look upward through their chains of command, they have literally dozens, or even hundreds, of exceptionally talented MBAs to use as examples and mentors. This clearly isn’t the case in the military. We have plenty of potential mentors in the military, but the organizational assumption, or perhaps hope, is that top talent will make a career of the military, pursue major command, and maybe even a star. I don’t say all of this to diminish what an accomplishment it is for consultants and bankers to gain admission to top schools. I say it, rather, to draw the distinction between their process and ours. We simply have to be a little more creative, and sometimes more discreet, in how we pursue this path.

In this article, I’ll discuss the three main phases of preparing for this transition: Phase I - Reflect on Your Goals and Cast a Vision; Phase II - Assess Your Options; and Phase III -Position and Prepare. Additionally, I’ll lay out what I believe are the most useful and effective tactics and questions to ask within each phase.

Phase I – Reflect on Your Goals and Cast a Vision
This is the softest of the three phases, and it involves something that we don’t do a lot of in the military…reflecting. We’re more comfortable receiving a mission-type order and aggressively putting it into action. I cannot, however, overstate the importance of this phase. Before you dive headlong into the almost all-consuming process of business school applications, you must do your best to make sure this is the right path for you. Though there are many questions worth exploring in this phase, three rise to the surface as the most critical:

  1. What is my career vision? You don’t need to get too specific here (i.e. don’t worry about industry), but you should at least try to provide the broad contours of your vision by answering the following questions:

    >>Is business the best path for me? Or would other options such as law, government, or engineering be more attractive?

    >>What kind of career trajectory am I looking for? Do I really want to take a shot at being a CEO someday?

    >>What kind of lifestyle and work/life balance will I be comfortable with? Do I really want to find myself in a super-competitive environment where excelling professionally could entail travel and long hours? Or would I rather pursue something more low-key?

  2. Is an MBA an important ingredient in my career vision? Business school is a great path, and it certainly opens up a range of new possibilities to many newly minted MBAs. But it may not be necessary for you depending on your vision and career goals. You may be able to jump squarely onto your ideal path straight out of the military, foregoing the two-year investment of time and money that top programs require. You may also conclude that an MBA is absolutely essential to your vision. Regardless of how you answer this question, you’ve made progress. You now have a little more clarity on how to proceed.

  3. What type of MBA program is right for me? In today’s world, there are many different ways to get an MBA. For the purposes of this article, I’ll briefly discuss the two most common, and arguably the most useful, for veterans.

    Full-time: The first is attending a full-time two-year MBA program. This option is the most intensive and for many veterans offers the most benefits. You’ll acquire entirely new skill sets; you'll gain invaluable knowledge about not only your future profession but also yourself; you’ll lay the foundation for a robust professional network beginning with your classmates and alumni of your school; you’ll have at your fingertips a range of resources and services such as career coaching and professional development; you’ll be able to take advantage of unique experiences and opportunities such as business plan competitions and global treks; and depending on which school you attend, you’ll have a variety of high-caliber firms and companies eager to make your acquaintance during recruiting season.

    Part-time
    : Maybe the full-time option seems excessive and a part-time MBA is a better fit for you. For some people this is a fantastic option. In fact, if you land a job with the right company upon exiting the military, the company may have a program in place to put high-potential individuals like yourself through such a program…fully funded. Working full-time while you earn your MBA means a few things. You’re learning a great deal on the job, you’re instantly able to apply lessons from MBA courses to real world scenarios, you’re making money, and you’re building your reputation within your company and advancing your career at the same time.

As you can see, there’s a lot to consider in Phase I. It may take you anywhere between a few days and a few months to adequately explore and answer these questions for yourself, but I encourage you to take these questions quite seriously. If you give these questions their due diligence, and you ultimately determine that you’ll pursue a top MBA program, then I assure you that having already thought through these issues will serve you well when it comes time to start filling out applications.

Phase II – Assess your Options
For the purpose of the rest of this article, I’ll assume that after completing Phase I, you’ve decided that attending a top MBA program is your objective. This next phase, then, is all about getting smart on those programs, assessing your personal fit with each, and narrowing your list. In order to do that, I recommend doing the following:

  1. Research school websites: It almost seems too obvious to mention, but you’d be surprised at how many people skip this. The fact is that most schools have put a plethora of valuable information on their sites that provides insight into everything from the school’s curriculum and culture to sample student profiles and data that will give you a sense of what it takes to be competitive.

  2. Read MBA sites: There are too many MBA-related sites out there to read them all, but you should find a few that you like and begin to follow them regularly. In addition to our own blog, a few of our favorites here at MilitaryToBusiness are Poets & Quants, Clear Admit, and Stacy Blackman’s B-School Buzz. The benefit of these sites is that they serve as an unbiased third party. You’ll find articles and data on a variety of topics such as price comparisons of tuition for top schools, where graduates from each school end up in the job market, and how Stanford and Harvard stack up against each other.

  3. Visit schools: Understandably, this could be difficult for a number of reasons, but if possible, visiting a school can give much deeper insight into what it would be like to be a student there. Meet and talk to students. Visit the admissions office and listen to an admissions brief. Visiting a school offers the added bonus of putting you on the admissions department’s radar screen…never a bad thing.

  4. Reach out to current students: There are two good places to start when trying to contact current students. I recommend you begin by reaching out to the members of the schools’ veterans’ organizations. In my experience, because of the bond between fellow veterans, these are the most likely individuals to spend some time chatting with you. Most school sites have a public listing of their various student clubs and organizations, so check there first. If that doesn’t work for you, contact any current students who also attended your same undergrad. LinkedIn is the best way to find these connections. The bottom line is that it’s never too early to begin exploratory conversations to learn more about these schools, and current students offer a quick way to learn.

  5. Network with alumni: Scour your current network to see if you can find an introduction to people who have graduated from the various MBA programs you’re interested in. It’s even better if you can find alumni who are also veterans. If you’re successful in making contact, in most cases they’ll be thrilled to talk to you. What you want to learn from these people is not necessarily what it’s like to go to school X, but rather, what it’s like to have graduated from school X. A sense of life after business school is an important insight to gain. Furthermore, these contacts can potentially serve as valuable resources in Phase III as well.

The objective of this phase is to gradually build a list of the schools to which you’d like to apply and to develop a strong understanding of what makes each school unique. Ideally, you'll begin this phase as soon as you feel confident with your answers from Phase I, but if you're struggling with the Phase I questions, then overlapping Phase I and Phase II just slightly may help you get off the fence. I should also say here that this phase really doesn’t end until you’ve completed the entire admissions process and have accepted an offer from a particular school. Up until that point, you should constantly be working to learn more about your schools in order to ascertain which one might be best for you.

Phase III – Position and Prepare
Finally, the phase that you’re all most eager to learn more about! So, what can you do now to get into your schools of choice? My apologies that you had to read about Phases I and II first, but I couldn’t in good conscience set it up any other way. Before I dive into the details here, it’s important to note that Phase III could and should run concurrently with Phase II. Many of the conversations that you’ll have with current students, for example, will not only help you learn about the school but will also give you insight into how to position and prepare yourself to be competitive…two distinct objectives that you’re pursuing simultaneously. So here they are, in order of importance, my recommendations for how to position and prepare yourself for top business schools when your transition is still two or three years away:

  1. Excel at your job: This may not be what you expected to hear, but it’s absolutely essential. All of the top business schools will be looking for a pattern of excellence in each endeavor you’ve pursued. Your current job is your primary endeavor. Take on the most challenging assignments, push yourself beyond your comfort zone as a leader, and go after roles and responsibilities that you find meaningful so you can pour your heart into them. When it comes time to apply to your schools, the vast majority of what you’ll discuss in your resume, essays, and interviews will be related to what you’re doing right now. You’ll want to have something to talk about, and you’ll want to have done it exceptionally well. Beyond the impact your work performance has on your business school candidacy, you’ve still got plenty of time to make a big impact within and beyond your organization, so do your best and try not to get too distracted.

  2. Crush the GMAT: The last thing you want to be worrying about two or three years from now when you’re applying to business school is either a GMAT score you’re uncomfortable with or no score at all. Take the time now to build a game plan to earn the score you want. To do this, start by reviewing your calendar and looking for the best 4 to 6-month stretch to prepare for and take the GMAT. Your calendar is likely full of things like workups and deployments, but the advantage of preparing early is that you should be able to find a relatively unbroken block of time in which to focus. For more strategy and tactics on defeating the GMAT, visit one of our previous posts here.

  3. Assess and address the gaps in your arsenal: Your diligence in Phase II should give you a better picture of what it takes to be competitive for admission to your schools of choice. You should take the time to reflect on what you’ve learned and figure out where you’re coming up short. Every school is looking for something slightly different, but it’s safe to say that all schools are interested in candidates who are well-rounded and who excel at what they do. It’s this point of well-roundedness that often gives veterans trouble. After all, you’ve been exceedingly busy with pretty weighty responsibilities. Military life can be all-consuming, and if we’re not careful, that can be the only dimension that really shines through in our business school applications. So, start by thinking about what you’re currently involved in outside of your immediate job in the military. Do you do any volunteer or community service work? Are you involved with any non-profits? Have you written an opinion piece for your local newspaper? Do you have any hobbies or passions that you pursue? If the answer to all of these is “no,” and you can’t think of another way to demonstrate how multidimensional you are, then this is a gap you need to address. Pick something you care about or find interesting, carve out some time for it, and get involved. I think you’ll find that the benefits of rounding yourself out as a person extend far beyond your competitiveness as an applicant.

  4. Time your exit: You need to consider your current schedule to depart active duty and then figure out if this timing is optimal for transitioning into business school. Separating from the military in May, for example, is far better than separating in November for obvious reasons. Since you’ve been diligent enough to start thinking through these issues so far in advance, you may be able to influence the timing of your exit to coincide nicely with potential matriculation dates. An extension is likely your easiest option. But depending on your circumstances and your service, there may be opportunities for early separation in order to pursue full-time education. Check with your personnel office on this one.

  5. Disclose your intentions wisely: As we’ve already discussed, it’s not the most common or celebrated path for high-performing military officers to exit in order to pursue an MBA. So don’t be too quick to reveal your intentions. You certainly need to be honest and forthright at all times, but there’s absolutely no need to disclose your intentions before it’s required. Depending on your command climate, letting the cat out of the bag could impact the types of roles and responsibilities you find yourself in during your remaining service obligation. At some point your command will need to know your intentions so they can properly plan, at which time you may be reassigned. And in this case, that reassignment is entirely appropriate. The bottom line is that you should use your best judgment regarding when and how to make this announcement.

The last piece of advice that I’d give on this topic applies to all phases of this process. It’s simply this: don’t let this consume you. It’s so easy to get sucked into the MBA admissions vortex, and it’s really tough to get out of it. You’ll be sucked in soon enough once you get into the thick of your applications. Your work in the military right now is far too important to be neglected, and you still have time to accomplish a great deal. So, continue to do the amazing things you’re doing, look into a few of the things we’ve talked about today when your schedule allows, and when your transition rolls around, I’m confident you’ll be setup for success.

-Dave C., Guest Blogger and Senior Consultant with MilitaryToBusiness (bio)

Thursday, June 9, 2011

“What are the pros and cons of serving in the National Guard or Reserves while in business school?”

I get asked this question a lot, and thought that it might be valuable to offer my perspective on the matter during a time when many officers are in the process of deciding what to do after they leave active duty. As a bit of context, I’m currently serving in the Massachusetts Army National Guard and have done so for the past two years while also attending Harvard Business School. It’s a decision that I would make all over again if given the opportunity, but certainly one that has come with a number of tradeoffs. In what follows, I will list and discuss the key arguments for and against becoming a “weekend warrior” in hopes of helping you make a more informed decision.

Benefits
There are a number of reasons to consider joining the guard or reserves. The primary arguments for joining can largely be classified as a desire to continue serving in uniform, greater stability, and financial.

1. Desire to continue serving - This one almost doesn’t require further explanation, but I’ll throw in my two cents anyway. More likely than not, you’re extremely proud of your military service and grateful for having had the opportunity to develop as a leader while dedicating your time, talent, and efforts to a cause much greater than yourself. But you’re likely also looking forward to your upcoming transition to civilian life and may be wondering whether you’d be all that fulfilled by serving one weekend a month and two weeks a year. I’ll be the first to say that the level of satisfaction I feel from my time serving in the National Guard pales in comparison to that which I felt while serving on active duty. That said, after spending my days in the all-consuming “business school bubble”, it felt extremely refreshing at times to throw on my ACUs and spend time with military folks. I’ve also felt that serving in the National Guard has enabled me to ease into civilian life. As someone who has been affiliated with the Army for his entire adult life, the military was all that I knew and was what I was comfortable with. The National Guard was a way for me to stay connected with the military while also enabling me to pursue other endeavors in my life.

2. Greater stability – Believe it or not, the guard and reserves can provide you with much greater stability while at business school than the IRR. The vast majority of the officers leaving active duty with less than eight years of service do so with an individual ready reserve (IRR) commitment to their branch of service. This is due to the fact that, upon commissioning, all military officers agree to a military service obligation (MSO) of eight years, with some or potentially all of it served while on active duty. For officers who leave active duty before the eight year mark, the remaining time is served in the IRR. And as many of you well know, members of the IRR are subject to recall to active duty in a time of war or national emergency. Seeing as how the US is currently involved with two wars, being recalled while in business school is a very real possibility. Just ask my close friend and HBS sectionmate who received recall orders in November of our first year at business school, ordering him to Afghanistan as part of a Military Transition Team (MiTT). Let’s face it – it’s simply the nature of the beast. By joining the guard or reserves, your unit is authorized to grant you between 12 and 24-months of stabilization (state dependent), meaning that you are guaranteed to not be deployed during that time period. If the state in which your school is located offers 24-months of stabilization, you can complete your degree without having to worry about being recalled to deploy midway through. This was a huge plus in my eyes. Furthermore, as an incentive to join the guard or reserves while still on active duty, your guard/reserve recruiting counselor can offer an MSO reduction incentive which will cut your remaining service obligation in half. That means you could feasibly complete your military service obligation by the time you leave business school.

3. Financial – Though not nearly enough to cover your monthly expenses while in business school, the drill pay you receive each month certainly doesn’t hurt. I, for one, never quite got used to subsiding on not-yet hard earned money (i.e. student loan debt), so earning a little income from serving in the guard one weekend a month felt quite nice.

Tradeoffs
While there are a number of reasons to join the guard or reserves, doing so requires you to make a number of important tradeoffs, as I’ve mentioned. It should come as no surprise to you that the arguments against joining are primarily time related: less time for school, less time for the important people in your life, and less time for you.

1. Less time for school – Maybe it was just me, but I found business school to be a lot more academically intense than I had expected. Many of the concepts, particularly in finance, required that I spend additional time to comprehend them well enough to feel comfortable discussing them in front of my 93 exceptionally bright and accomplished sectionmates. I can recall a few drill weekends in particular (the ones with hours and hours of briefings) where I wanted nothing more than to spend my time reading and preparing cases so that I could be ready to go for class on Monday.

2. Less time for the important people in your life – This was a big one for me. As a husband and father of two, making time to spend with my family is extremely important. For me, I treated business school like a job, meaning that the weekends were my opportunity to spend quality time with my wife and kids. Drill weekends obviously reduced the amount of time I had to spend with them and required me to find ways to make up for lost time.

3. Less time for you – As I mentioned, business school was much more rigorous than I expected it to be. Time is your most precious commodity and anything that eats into what little free time you do have obviously has a ripple effect on your ability to devote time to your many duties and obligations. This, of course, pushes personal time even further back on the back burner. At this point, after serving a number of years in the military, we’re all used to putting ourselves last. But if you’re not careful, you will quickly find that you’re being led by your life and not the other way around.

While my National Guard commitment did in fact soak up some pretty valuable free time, I never found it unmanageable. If anything, it made me more efficient and better at managing my time even if was only out of sheer necessity. Thus, my overarching recommendation to you would be to make the decision of whether to join the guard or reserves based on how much you value the benefits of serving rather than how concerned you are with the tradeoffs you’ll have to make as a result.

-Rob C., Guest Blogger and Co-Founder of MilitaryToBusiness: Consulting Service for Top Performers