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Best Options to Use to Pay for Graduate School

Purpose of this article: to explain some options you have to come up with the funds to go to your dream graduate school.

Overview:

You have just been accepted to graduate school, and while you already know the return on investment is high, you have some questions on how to pay for this. The article below will give you some of the best tactical strategies to come up with the money for graduate school.

Strategy 1: Contact the financial aid officers at your school and ask about Fellowships or Scholarships

Many business schools offer lucrative merit-based and/or need-based fellowship awards, and similar to scholarships, these awards do not need to be repaid. On top of fellowships, most schools offer a number of merit-based and/or need-based scholarships. Eligibility for these awards is based on a variety of factors like previous educational achievement, GMAT or GRE scores, and other career related factors.

The stats show that one of the best schools for fellowships is the Harvard Business School. According to the school’s website, “HBS Fellowships are gifts that do not need to be paid back, and nearly 50% of the class receives a fellowship award. The average HBS Fellowship is approximately $37,000 per year, or $74,000 total. All students are encouraged to apply for an HBS Fellowship after being admitted to the program.”

So regardless of your background and career interests, your best bet toward obtaining one of these lucrative offers is to talk with the financial aid department of your respective school as soon as you apply/know that you are getting in. These awards a typically limited and are given out pretty quickly.

Strategy 2: Borrow smartly from the Federal Government

In order to be eligible for federal loans, you will need to be a U.S. citizen and file a form called the Free Application for Student Aid (FAFSA). Once filled out, this form will give you access to federal student loans. Your options from a federal loan standpoint are:

• Stafford Loans (Federal Direct Unsubsidized Loans)
• Graduate PLUS Loans

The following details the characteristics of each of these federal loans:

Stafford Loans (Federal Direct Unsubsidized Loans)
• You can borrow $20,500 annually and $138,500 max lifetime for non-health fields like business

• You can borrow $41,167 annually and $224,000 max lifetime for health fields

• The interest rate is fixed at 6.0% as of June 1, 2017. New rates will be determined on June 1, 2018

• There is a 1.066% origination fee that is deducted proportionally from the loan disbursements. This means that you will receive less money that the amount you actually borrowed

• This loan is Unsubsidized which means interest accrues during the entire time you are enrolled in school

• You do not need to demonstrate financial need to qualify and you don’t need good credit to obtain

• Repayment of this loan is delayed for 6-month after your gradation date and is ultimately unavoidable unless you are eligible for loan discharge or forgiveness

Graduate PLUS Loans
• You must borrow the full amount ($20,500) of the Stafford Loan first, before borrowing any of the Graduate PLUS Loan.

• Once you borrow the full amount of the Stafford Loan, you can then borrow up to the remaining cost of attendance.

• The interest rate is fixed at 7.0% as of June 1, 2017. New rates will be determined on June 1, 2018.

• There is a 4.264% origination fee that is deducted proportionally from the loan disbursement similar to the Stafford Loan

• You do need to demonstrate good credit to obtain and the government does reject applicants who have had significant financial trouble

• Repayment of this loan is delayed for 6-month after your gradation date and is ultimately unavoidable unless you are eligible for loan discharge or forgiveness

So, in summary the federal student loan options for graduate students are as follows:

Strategy 3: Carefully consider if a private loan is a viable option for you 

Borrowing funds for graduate school from private sources like banks or Sallie Mae can be an option for you. But my honest advice will be to opt for loans from the federal government because the interest rates and origination fees are typically better. And from a repayment option, the federal government loans give you more flexibility with plans like income driven repayment.

Nevertheless, if you are still interested in pursuing private lenders, here are some options from NerdWallet.

Strategy 4: Follow one of these three alternative options to finance your degree 

If you find yourself unable to secure funds from fellowships, scholarships or student loans, the following three options could serve as a last resort:

1. Graduate Assistantships – under this method, you would work as a graduate assistant for the university while enrolled in your MBA program. Click here to see an example of Michigan State University graduate assistantship program

2. Industry specific scholarships – just like it sounds, based on what you are pursuing, there can be a ton of industry specific type scholarships. Just note that they are usually in small denominations of $1,000 to $5,000 so you will have to collect a lot of different types to fund the full cost of attendance

3. Employer Sponsorship – companies often have tuition assistance programs as well as full on sponsorship programs for high performing individuals. The “catch” though is you usually have to return to that same company for a certain period of time.

Closing 

Financing your graduate degree is more than possible and will more than likely take a combined approach. The best-case scenario would be to get a fellowship or scholarship through your university. But the most likely scenario will be funding our education with a combination of student loans from the federal government. My hope in writing this article is that after reading this, you will feel more confident in finding the funds necessary to finance your graduate degree.

Aside:  If you are an international student, the type of loans your can apply for depends upon whether or not you have a U.S. cosigner. With a U.S. cosigner, you will be eligible to borrow from a number of different lenders. Without one, your options are very limited and usually gravitate towards the private student loan variety.

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Choose an LLC as your business structure

Purpose of this article: to explain why the Limited Liability Company (LLC) business format is the best for most small business owners

Overview:

By default, most businesses end up getting set up as a sole proprietorship. And while the benefits of a sole proprietorship like ease of formation are there, the disadvantages far outweigh these benefits. Specifically, as a sole proprietorship, you bear significant liability risk to your personal assets and from a tax perspective, you are not optimized. The rest of this document will walk you through my recommendation to set your business up as an LLC.

Why You Should Avoid Sole Proprietorship

The main disadvantage of a sole proprietorship as a business format is in regards to liability. As the owner of the sole proprietorship you are PERSONALLY LIABLE for all debts and actions of your business. No matter what you do, this business form links all personal wealth to the business. And this liability is unlimited in nature which means creditors can come after all of your personal assets to satisfy your outstanding debts

On top of this unlimited personal liability, the sole proprietorship isn’t as tax advantaged as some of the other business forms. Specifically, at net income generated by your business is subjected to the 15.3% SECA tax (self-employment tax). You then list your remaining net income on your personal income tax on Form 1040 Schedule C and this net income is subjected to your personal income tax rate.

Lastly, because of this business form, it is very difficult for you to raise longer-term capital since you are unable to sell interests or shares in your business. Investors like tax advantaged investment vehicles, and the sole proprietorship isn’t one of them

Benefits of the LLC Structure

Given the disadvantages of the sole proprietorship, my recommendation would be for you to consider an single-member managed LLC for your business format. An LLC business format is sort of a hybrid between the partnership and the corporate business forms. The LLC allows the liability protection of a corporation with the tax advantages of a partnership. Once you set up your LLC, it is considered a separate business entity that is owned by investors known as members. In your case, your LLC would be a single-member owned (which is you), and is managed by you as well.

Especially when compared to the sole proprietorship, the LLC limits the liability of the member to the amount of their investment in the LLC. Therefore, a member of an LLC is not personally liable for the debts of the LLC. Under the sole proprietorship business format as I mentioned before, the sole proprietor is liable for all debts incurred by the business. In essence, creditors can go after your home, car, and other personal property to satisfy debts. Hence it’s imperative as a small business owner to at least form an LLC in the minimum. In general, the biggest reason you want to go with an LLC is the tax benefit you get due to the pass through nature of the income generated in the business with the liability protection of the business form.

Longer Term… LLC Filing as an S-Corporation

As mentioned before, the biggest tax benefit of forming an LLC is the pass through nature of the income generated in your business. When structured properly, the income from your LLC is taxed direction to the members at their own personal tax rates.

But there is an even more optimal way to streamline and potentially reduce your business tax liability even further as an LLC. The IRS allows LLC that have been formed to be treated as an S-Corporation for tax filing purposes.
The reason an LLC would want to file as an S-Corporation would be to avoid the 15.3% Self-Employment Tax that is charged on LLC for all income generated. Put another way, the S-Corporation is the only business form that makes it possible for you as the owner of your business to save on Social Security and Medicare taxes.

Below, I give you a tangible business example:

 

Under this hypothetical scenario where you drive $100,000 in net income and pay yourself a $50,000 wage you would be better off by 24% under the S-Corporation. Please note that there are some major assumptions regarding your wage and effective tax rate, but the argument is the same regardless of the actual numbers.

Filing as an S-Corporation will allow you to avoid the additional tax that is levied on LLC for Social Security and Medicare. But before we get here, let’s get you set up as an LLC first!

How to Get Your LLC Set Up

In order to get your LLC off the group, you will need to complete the following:

– Talk with Blue Elephant Financial Services.

– Decide on a name for your business.

– Find a business address. Typically I recommend to my clients to go to the UPS store and rent a PO Box. Most states will allow you to use this as your business address. This can run you anywhere from $100 to $200 annually.

– Double check that your business name isn’t already registered with another person and is available in your state. Note that your name will need to contain LLC at the end. Click here for South Carolina and here for North Carolina.

– Verify that the URL and domain name of your company is available. Even if you don’t plan on making a website right this moment, you will want to buy the domain name in order to prevent others from acquiring it. Personally, NorthLake Digital LLC is one of my favorite companies for this task.

– Find a registered agent. I typically advise using a digital option like MyLLC.com. This will cost you around $99 annually. Click here for a direct link to this company.

– File the Articles of Incorporation with your state. North Carolina will cost $125 and South Carolina will cost $110.

– Draft an LLC Operating Agreement. In some states this is required and in others it is option. Regardless this is good practice because this document outlines the ownership and operating procedures of your LLC.

– Register your business with the IRS to get an EIN tax ID number which will be used for tax filling needs. Click here for direct link.

– Apply for a new business bank account that is separate from your personal account. This will force you to separate personal assets from the LLC.

– Consider getting a business credit card. This too will force you to separate personal expenses from the LLC.

– Apply for any pertinent business licenses or permits (depends on your services)

– Complete your annual report (necessary in North Carolina and not necessary in South Carolina) and report your LLC business income on Form 1065 Partnership Return.

Closing

In closing, establishing your business as an LLC will help reduce any personal liabilities and will give you the longer-term potential tax benefit (if we file your tax returns as an LLC filing as S-Corporation). My hope in writing this article is that after reading this, you will take the steps to create your own business using the LLC format. I wish you the best of luck in getting your business off the ground and look forward to hopefully serving your needs in a much deeper capacity than just this article.