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Getting a Master of Business Administration is an investment. Tuition costs vary widely depending on the school, but the average cost of an MBA is $61,800 for a program in the U.S.

If you’ve committed to pursuing an MBA, the reality is that a higher income is probably still a few years away. However, you’re responsible for the cost of schooling now. It can be daunting, but there are options for making business school more affordable. Here are a few tips to evaluate as you craft a plan to pay for your MBA program.

Saving Up in Advance

If you’re already employed, and especially if you earn a high salary, it may make sense for you to stay in your gig for a few more years and put money away toward your degree. The more you save now, the less you may have to take out in loans later. If you’re interested in accelerating your savings, consider cutting your expenses to prepare for the lifestyle change of becoming a student again.

Taking Advantage of Free Money

There are a plethora of scholarships, grants, and fellowships available for business students. If you manage to land one, they can help reduce your costs slightly or significantly, depending on the size of the award.

When hunting for scholarships, consider starting with the schools you’re thinking of attending. Many institutions offer their own need- or merit-based scholarships and fellowships, some of which may even fund the entire cost of MBA tuition. Many, but not all, of these are geared toward specific groups of students.

Awards may be based on academic excellence, entrepreneurship, and for those committed to careers in real estate or finance. Contact your school’s admissions or financial aid departments to learn about the opportunities you qualify for.

Getting Sponsored by a Company

Some employers offer to pay for all or part of an MBA degree. In exchange, they may require that you work there for a certain time period beforehand and commit to maintaining your employment for some time after you graduate.

Some companies may offer relatively modest grants, while others might offer to cover the bulk of tuition costs. Some companies that offer tuition reimbursement for employees pursuing MBAs include Deloitte, Bank of America, Apple, Intel, Procter & Gamble, and Chevron.

If you can land a job at a company that offers this benefit, it can be a major help in paying for school and reducing your debt burden. Just be sure that you’re willing to meet the commitments, which in most cases means staying with your employer for a while.

Taking Out Student Loans

If you can’t make up the full cost of tuition and living expenses through savings, scholarships, or sponsorships, borrowing student loans is another option. You might first consider borrowing from the federal government, as federal loans offer certain borrower protections and flexible student loan repayment options.

Federal Student Loans

To apply for federal student loans, first fill out the Free Application for Federal Student Aid (FAFSA®). The school you attend will determine the maximum you’re able to take out in loans each year, but you don’t have to take out the full amount. You might choose to only borrow as much as you need, since you’ll have to pay this money back later—with interest, of course.

Graduate students are generally eligible for Direct Unsubsidized Loans (up to $20,500 each year) or Direct PLUS Loans. Neither of these loans is awarded based on financial need.

Both of them accrue interest while the student is enrolled in school. Unless you pay the interest while you’re in school, it will get capitalized (or added to the principal of the loan), which can increase the amount you owe over the life of the loan.

Direct Unsubsidized Loans will have a six-month grace period after graduation in which you won’t have to make principal payments (remember, interest still accrues). Direct PLUS Loans, however, do not have a grace period, so principal payments are due as soon as you earn your degree.

Private Student Loans

If you aren’t able to borrow as much as you need in federal loans, you can also apply for MBA student loans with private lenders, including banks and online financial institutions.

Private student loans will have their own interest rates, terms, and possible benefits. Make sure to research the different lenders out there and see which is the best fit for your financial situation.

Paying Student Loans Back

Taking out a big loan can be daunting, but there are options for making repayment affordable, especially with federal loans. The government offers four income-based repayment plans that tie your monthly payment to your discretionary income.

If you make all the minimum payments for 20 or 25 years, depending on the plan, the balance will be forgiven. (However, the amount forgiven may be considered taxable income.) If you run into economic hardship, you can apply for a deferment or forbearance, which may allow eligible applicants to reduce or stop payments temporarily.

If you put your degree to use at a government agency or nonprofit organization, you may also qualify for Public Service Loan Forgiveness. If you meet the (extremely stringent) criteria, this program will forgive your loan balance after you make 120 qualifying monthly payments (10 years) under an income-driven repayment plan.

Refinancing Student Loans

If you’re still paying off student debt from college or another graduate degree as you enter your MBA program, you could consider looking into student loan refinancing.

This involves applying for a new loan with a private lender and, if you qualify, using it to pay off your existing loans. Particularly if you have a solid credit and employment history, you might be able to snag a lower interest rate or reduced monthly payment.

While there are many advantages of refinancing student loans, there are also disadvantages, as well. If you refinance federal student loans, you lose access to federal forgiveness programs and income-based repayment plans. Make sure you do not plan on taking advantage of these programs before deciding to refinance your student loans.

The Takeaway

MBA programs can offer a valuable opportunity to advance your career and increase your income, but they can also come with a hefty price tag. Options to pay for your MBA degree can include using savings, getting a scholarship, grant, or fellowship, or borrowing student loans. Everyone’s plan for financing their education may be different and can include a combination of multiple resources.

Making existing loans manageable while you’re in school can go a long way to making your MBA affordable. Down the line, you can consider refinancing the loans you take out to get you through your MBA program. You can get quotes online in just a few minutes to help figure out whether refinancing can get you a better deal.

If you do decide to refinance your student loans, consider SoFi. SoFi offers an easy online application, flexible terms, and competitive rates.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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Low yields from bond investments across the globe have left investors seeking other sources of income, and dividend stocks have often been where such investors have turned.

The need for income-paying dividend stocks, as well as the expansion of the market for exchange-traded funds (ETFs), have made dividend ETFs increasingly popular.

With dividend ETFs, not only do shareholders have exposure to potential gains in share price, they may be able to line their pockets with additional income in the form of quarterly payouts. Plus, even if share prices aren’t roaring along, these dividends can still provide a little income boost.

Let’s dig deeper into dividend ETFs.

ETFs Basics

An ETF is a fund that allows individuals to invest in a diversified basket of investments, such as stocks, bonds, and other assets.

Most ETFs track some sort of index, such as the S&P 500, which itself tracks the performance of the 500 largest U.S. stocks. Their holdings primarily mirror the assets included in the index. That said, there may be a small percentage of the portfolio that may lie outside the fund and vary a little bit depending on fund manager choices.

As the name suggests, “exchange-traded funds” are traded in real time on exchanges, such as the New York Stock Exchange or Nasdaq. The price of the ETF fluctuates throughout the day, and these funds can be bought and sold all day.

This is an important distinction from how mutual funds work, which also allow individuals to invest in a basket of investments. Mutual fund trading is done once per day at the end of the trading day.

Another important difference is that ETFs typically have lower fees than mutual funds. Because ETFs that track an index are usually passively managed, they don’t require a lot of intervention and work from fund managers. Less time and energy from fund managers translates into lower fees that end up being passed on to investors.

Recommended: ETFs vs. Mutual Funds: What’s the Difference?

How Dividend ETFs Work

A dividend ETF works much the same as a regular ETF, though they usually track part or all of a dividend stock index. For example, a dividend ETF might track the Dow Jones U.S. Select Dividend Index , which consists of 100 dividend-paying stocks.

Dividend stocks are securities that pay a portion of company profits out to shareholders. Those dividends are usually paid on a fixed schedule. The process involves three important dates: the declaration date, the date of record, and the payment date.

The declaration date is the day the board of directors announces that it will pay a dividend. The date of record, also known as the ex-dividend date, is the day shareholders “of record” are entitled to the dividend. And finally, the payment date is the actual day that the dividend is paid out. Dividends are usually distributed to shareholders in the form of cash.

Do ETFs Pay Dividends?

Dividend ETFs collect the dividend payments from their underlying stocks and make distributions to the ETF shareholders. The process of payment from a dividend ETFs mirrors that of single dividend stocks. There is a record date, ex-dividend date, and a payment date.

That said, the ETF’s schedule may be different from the schedules followed by its underlying stocks. Dividend ETFs usually make payments according to a regular schedule, which is described in the fund’s prospectus and is publicly available.

Recommended: What are Dividends and How Do They Work?

Types of Dividends

Qualified dividends are those that can be taxed at the capital gains rate. The capital gains rate then depends on the investor’s modified adjusted gross income (MAGI). This is also known as the preferential rate.

In contrast, unqualified dividends are taxed at income tax rates, which are generally higher than capital gains tax rates.

The Internal Revenue Service (IRS) requires that investors hold shares for more than 60 days during a 121-day period. The period starts 60 days before the ex-dividend date.

Recommended: What Is the Current Capital Gains Tax Rate?

How Dividend ETFs Are Taxed

ETFs may also be more tax efficient than other similar investments. That’s because they’re passive investments with little turnover in the holdings. The process of creating and redeeming ETF shares are also not subject to capital gains taxes on any individual security within the fund.

Dividend ETFs are a little bit more complicated when it comes to taxes due to the way dividends are taxed by the IRS. There’s no escaping tax on dividends. Shareholder dividends are taxable in the year that they are received whether they are paid in cash or whether they are reinvested. The first thing to pay attention to is whether you are receiving qualified dividends.

The bottom line: Rules for dividend taxation may be complicated, but there are no special rules you have to remember that differentiate how dividends from ETFs are taxed versus those from regular dividend stocks. What matters most is whether those dividends are qualified or unqualified in the eyes of the IRS.

Types of Dividend ETFs

There are hundreds of dividend ETFs that can track all sorts of indexes. We’ve already mentioned one that tracks the Dow Jones U.S. Select Dividend Index of U.S. stocks. Others may track global indexes, while some may target specific indexes by country.

Still others will target equities of specific sizes, or styles, or sector. Some track bond indexes of varying risk. And others target real estate or currency or alternatives. The variety can be dizzying, but investors can take a look at what’s available by looking at the ETF Database directory.

The dividend options on offer leave investors with plenty to choose from. Here’s a closer look at just a few categories of dividend ETFs that investors may encounter:

Dividend Growth ETFs

A company that’s steadily growing its profits should theoretically be able to offer higher dividends in the future. That’s the reasoning behind dividend growth ETFs, which target companies that show increasing profits and sales.

Dividend Value ETFs

Value stocks, like those targeted by dividend value ETFs, are those that operate in relatively stable industries but are priced cheaply compared to the potential value of the company.

They typically have a low price-to-earnings ratio. The idea is that the company may experience a future jump in share price as investors catch on to the company’s true value. Shares inside the ETFs could provide a nice boost in price in addition to the dividends they provide.

Recommended: Value vs. Growth Stocks: What to Know

High Dividend Yield ETFs

This category of ETFs goes after stocks that produce high dividend yields. But here’s the rub: While the payout for these stocks may be big, it doesn’t necessarily mean that the stock will grow particularly fast. In other words, you may be trading swift share price growth for high dividend yields.

Also, as stock price goes down, yield goes up. It’s counterintuitive, but the way this math works out may actually be masking the fact that you’re losing money on the price of the stock. Investors could potentially combat this by looking for ETFs that invest in stocks that at least keep pace with the market long-term.

Some dividend ETFs target the so-called “Dogs of the Dow”. The Dow is an index that comprises the 30 largest U.S. industrial stocks. The “dogs” are the 10 highest-paying dividend stocks within this index, yet they also tend to be the lowest performers when it comes to price gain—hence their slightly unflattering moniker.

One example of a high dividend yield ETF is the Vanguard high Dividend Yield ETF (VYM), which has about $36 billion in assets.

Reinvesting Dividends

Reinvesting dividends is the process of using the income collected from a holding and immediately buying more shares of the stock or ETF that pays out the dividend. The practice is commonly known as dividend-reinvestment plans (DRIP).

The Takeaway

ETFs provide a built-in way to add diversification through the basket of stocks they invest in. Even so, you may still want to consider how the ETF will fit into your overall plan.

When choosing a dividend ETF, you might consider your overall portfolio allocation and diversification. Your portfolio may be built based on three factors: your goals, your time horizon, and your risk tolerance. Adding an investment without considering these factors could throw off your careful plans.

You can also find out quite a bit of information about a fund from its prospectus, which is filed with the Securities and Exchange Commission (SEC) and is available to every member of the public. The prospectus can give you information such as past returns, as well as what kinds of fees you can expect to pay when you invest in the fund. You should also be able to learn more about the fund’s investment strategy.

Once you’ve decided on a fund and you want to purchase shares, you could do so inside an Active Investing account with SoFi. You can buy and sell your own stocks, all with no commission and no account minimums. You’ll also have access to financial advisors who can help you figure out the options to suit your needs. To learn more about how to build your investment portfolio, visit SoFi Invest®.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, LLC and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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