$FREE Tuition and Positive Cash Flow? Clearing up common GI Bill misconceptions

As the Director of Military and Veterans Affairs at the Robert H. Smith School of Business at University of Maryland, I frequently speak to active duty service members and military veterans who are considering graduate school. A common theme I'm finding is confusion about how the Post 9/11 GI Bill works, what it will cover, and how much a veteran will get paid.

I can understand the confusion; when I was preparing to pursue my graduate degree I had to research these questions extensively and develop a plan of attack. In this article, I will try to clear up some common misconceptions and, maybe, convince you that pursuing a degree isn't a financial long-shot after all.

Eligibility... Some really important distinctions.

There are two fundamental elements of your Post 9/11 GI Bill: 1) academic months remaining and 2) eligibility percentage. To start, in order to be eligible for the Post 9/11 GI Bill, a service member has to accrue at least 90 total days of qualifying service on Active Duty. Once you are "eligible" to receive benefits, you are entitled to 36 academic months of financial support from the VA. Why? Thirty-six months translates to a four-year Bachelor's degree (since an academic year consists of 9 months). As you progress through your studies, the VA deducts the number of days in a term or semester from your overall academic months remaining.

For example, suppose you enrolled in classes in fall 2017 (between the dates of Sept 5 - Dec 16). In this case, the VA would deduct 102 academic days (approximately 3 months and 2 weeks) from your academic months remaining. At some point during the fall semester, you would receive a Statement of Benefits from the VA indicating that you have 32 months and 18 days of academic benefits remaining. The deductions from your total academic months remaining continue each semester until your benefits are exhausted.

But how much will the VA pay the school? The payments made to your institution cover some or all of your tuition and fees, based on your eligibility percentage. For example, if you had accrued 90 total days of qualifying service, you would be eligible for 40% benefits. In this case, if your semester tuition cost $10k (assuming in-state rates), the VA would pay your institution $4k (40% of tuition) and 40% of your mandatory fees. If you continue to accrue qualifying service time, your benefits percentage will increase. Click here for the table. After 36 months of qualifying service time, you are eligible for 100% benefits! In the same example of a $10k tuition price, the VA would pay your institution $10k for tuition plus all mandatory fees.

I went to an Academy and just pinned on O-3 (4 yrs)... where's my GI Bill? "Days of qualifying service" explained.

Days of Qualifying Service is time served on active duty outside of any mandatory payback period for other educational benefits. For example, if you went to an Academy and incurred a five year mandatory service commitment, you would not start to accrue days of qualifying service until after your initial commitment was fulfilled. The same situation applies for ROTC scholarship students who incur obligated service time.

Okay, so tuition will be free, but how will I support myself or my family? Enter, the Monthly Housing Allowance...

In addition to providing payments for tuition and fees, the VA will also pay students a Monthly Housing Allowance (MHA) based on the BAH for E-5 with dependents in your school's zip code (even if you were enlisted and never advanced to E-5 and even if you have no dependents!) It's important to note that you cannot receive MHA if you are on active duty due to receiving BAH. To help you avoid any pitfalls in estimating your benefits, let's take a look at an example of how this breaks down in reality.

We'll use University of Maryland, College Park in this scenario. Because UMD has a Washington, DC metro zip-code, the MHA payout is $2367 in FY18. It's important to note that the MHA is only paid during the days that your school is in session. Remember the previous example in which you took fall classes that ended Dec. 16th? In the month of Dec. you would receive a prorated MHA payment of: ($2367/30)*16= $1262. This is an important factor to understand prior to starting school so you don't run into any unexpected cash flow surprises during academic breaks (such as winter holiday). That said, over the course of a two year graduate program at UMD, the VA will pay you nearly $40,000* in Military Housing Payments as a Full Time student. *(This calculation assumes: 100% GI Bill eligibility, 2 years of study from mid-Aug 2017 to mid-May 2019, the calculation estimates pro-rated months, and assumes no winter or summer term classes are taken... taking summer and winter classes could yield an even higher MHA figure!).

Okay, now that I've shown you how you can receive $40-grand in positive cash flow as a student and 100% tuition and fees, you may still be skeptical about somehow getting raked over the coals. This seems too good to be true, right? It's not! We'll dive into this more in "Grad Student Positive Cash Flow" below. But first...

The State-School difference... AND, Yellow Ribbon - what's that?

Aside from eligibility percentages, this topic also creates confusion. Let me break it down very simply...

Take the case of University of Maryland's Full-Time MBA, for example. For academic year 2017-2018, Full-Time MBA tuition is around $47k (in-state rate). Because University of Maryland is a state school, the VA will pay for ALL of your tuition and fees (assuming you are 100% benefits eligible). What's the catch? There's no catch! You are using the benefits that you have earned through your well and faithful service.

But what if you attend University of Maryland and you live in Virginia, for example? In this case you would be charged out-of-state rates for tuition and fees - $56k / year. However, because UMD has entered into a Yellow Ribbon agreement with the VA, your tuition will be reduced by $2500/yr. The Yellow Ribbon program enables schools to provide additional financial support to GI Bill eligible students for the purposes of reducing the out-of-pocket costs due to being charged out-of-state tuition rates or attending a private institution. Under the Yellow Ribbon program, the VA then matches the school's contribution. At UMD's Smith School, the University will contribute $1250/yr to Yellow Ribbon benefits and the VA will match $1250/yr. This results in a total YR benefit to a student of $2500/yr. In order to be eligible for Yellow Ribbon benefits, a student must have earned 100% benefits. Additionally, there number of Yellow Ribbon recipients is capped by your school; be sure to check with your institution's VA Certifying Official for more information. Getting back to the example above, your total out of pocket tuition expense would be about $6k for the year... not bad. But wait, there's more!

At some institutions, including University of Maryland, obtaining a Graduate Assistantship as part of student's financial aid package automatically entitles the student to in-state tuition rates. Therefore, if the Virginia resident mentioned above were to attend UMD in the Full Time MBA program and be awarded a Graduate Assistantship, his or her out of pocket tuition expense would be $0... no Yellow Ribbon benefits would be needed! Additionally, Graduate Assistantships generally include a stipend or other compensation. More about this in the "Cash Flow" section...

Before moving on, it's important to reiterate that these incredible financial benefits exist at UMD because it is a state school. If, for example, you were to attend a private institution, the maximum GI Bill payment to the school would be capped as seen in the table below. Similar to the "out-of-state tuition" example, you could apply for Yellow Ribbon benefits to reduce your out-of-pocket costs (click here for more info).

Grad Student Positive Cash Flow... When do you see those words in the same sentence!?

Alright, so I've worked through the major technical aspects of the GI Bill. Hopefully, I've cleared up some of the common misconceptions. In this final section, I'll reveal to you that Full-Time studies don't have to be distant dream; you won't have to be an "impoverished" grad student if you approach things wisely!

Here's an example. Recall the MHA for Washington, DC - $2367 (tax free). Out of the gate, that's a fairly decent monthly cash flow. Even in an expensive real estate market like the Washington DC metropolitan area, one can find a nice place to live and cover most, if not all, housing expenses (even with a family!).

Next, let's return to Graduate Assistantships (GA). Though they will vary from school to school, let's assume that you are awarded a 20-hour per week GA. Depending on your school, this may also entitle you to purchase health care benefits at a great price. At UMD, a 20-hour GA could net you (after taxes), somewhere in the neighborhood of $600-700. In this example, we're now approaching $3k/month in positive cash flow. Aside from the MHA and GA cash flow streams, there are other incomes to be explored. For example, if you were a Junior Officer who affiliated with the National Guard or the Reserves upon separating from active duty, you could around $600/month (O-3 pay) and have access to extremely affordable health care. Lastly, you will need to consider any income you may benefit from through your spouse or partner.

When estimating your graduate school cash flow, however, you should also consider potential Summer Internship pay as well. Using a very conservative figure, let's assume you can net $10k between the first and second years of your program (this figure is fairly low for B-School students). So, if were to receive MHA at the 100% benefits level, earned a GA and Summer Internship, and drilled as a Military Reservist you can reasonably achieve $75k+ positive cash flow over your 20 month MBA program at University of Maryland.

$100k tuition $FREE tuition & $75k income... where do I sign up?

For more information about University of Maryland's Robert H. Smith School of Business, please contact the author, Carl Comasco ([email protected] or 301-405-9506).