Shopping for Financial Aid

A chat with's Mark Kantrowitz on where to look and what to look for. His chief recommendation: Don't borrow more than you can afford

Mark Kantrowitz knows a thing or two about paying for a graduate education. The creator and publisher of the financial aid Web site financed a Masters' degree and has completed all but his dissertation in computer science at Carnegie Mellon University. He completed his undergrad degree at the Massachusetts Institute of Technology and previously worked as a research scientist.

Kantrowitz fielded questions about how to pay for your MBA from audience members and from BusinessWeek Online's Jack Dierdorff and Brian Hindo during a live chat on BW Online on May 16. Here are edited excerpts of that discussion:

Q: How does financing an MBA differ from financing other graduate degrees?


The main difference is in the source of funding. In many cases, MBA students can be sponsored by a company -- either their current employer or some other company. Most other graduate students finance their education through a combination of loans and assistantships or fellowships. Assistantships and fellowships are less prevalent among MBA students.

Basically, it depends on what field students are going into. If it's an MBA, they're more likely to be sponsored by an employer. In the sciences, they're more likely to have a research fellowship or an assistantship. In the humanities, they're more likely to have a teaching assistantship.

Q: Are the maximum allowable funds available for loans determined by your school? If so, what's the best way to obtain additional funds?


There are two types of loans for paying for a graduate education, such as an MBA. There's money from the federal government and money from private banks. The federal loans are known as Stafford Loans, and the bank loans are known as private, or alternative, loans.

The amount of money you can borrow under federal loans is set by the government. For graduate students, the maximum under the Stafford Loan program is $18,500 a year. And there's a cumulative limit of $138,500 for graduate and undergraduate combined. Private loans have limits set by lenders, and they vary considerably. It's important to minimize the amount of money you borrow. A good rule of thumb is: Live like a student now so that you don't have to live like a student after you graduate.

Q: How long does it take for international applicants, once they're admitted, to file the paperwork for loans with a U.S. co-signer? What paperwork might be involved?


I'll answer the second question first. Federal student loan programs aren't available to international students, who are limited to private loan programs. The requirements for those programs differ from lender to lender. But typically, they require a credit check of both the student borrower and the co-signer, as well as an application that provides information about the field the student is going into and other details of the person's background. The co-signer must be a U.S. citizen, and the student must be enrolled at least half-time. International students will also need to provide a copy of their visa, and the banks may require a particular type of visa, such as an F-1 visa.

With regard to the first question, if you're a U.S. citizen, the first step is to submit the Free Application for Federal Student Aid (FAFSA) as soon as possible after Jan. 1. The FAFSA is used to apply for federal student aid, including the Stafford loan. When you are granted a Stafford loan, typically the lender will require you to sign a promissory note. There may also be entrance counseling -- a review of the terms of your loan and the repayment obligations, and the student's rights and responsibilities with regard to the loan.

Private loans may require additional application materials, but typically the bureaucracy involved is minimal. Paperwork can be filled out in a matter of an hour or two. International students can't submit a FAFSA, but the procedure for private loans is similar. International students do have to have a student visa or they won't get the loan, and they also have to have a U.S. co-signer.

Q: What are the chances of getting scholarships from private organizations for an MBA? How do applicants find these organizations?


The best way to find scholarships for a graduate or undergraduate education is to visit, which is a free site. It has more scholarship listings than any other site or book. And it takes only half an hour to search its database. It also will send e-mail notifications of new awards that match your profile.

Q: Should students first take the $18,500 in Stafford Loans and then try to get additional loans from credit unions and banks? Or should students check the rates first?


The considerations when deciding what loan to accept include the cost of the loan, the quality of the customer service, and the flexibility of the repayment provisions. Typically, most students want the least expensive loan, so you should always look at the interest rates. But depending on your circumstances, the other factors may also play a significant role. Typically, the Stafford loan has the lowest interest rate. So generally students should first borrow under the Stafford program before using other sources. But there are always exceptions to the rule.

Q: What's the usual term for paying back these loans? Or for any loan, for that matter?


The repayment term of Stafford loans is 10 to 25 years. Typically, it's based on the amount borrowed. Most student loans don't have a prepayment penalty, so you're always able to pay off the loan sooner, either partially or in full. For private loans, the term depends on which bank is offering the loans.

Q: What options are available for international students without co-signers?


Generally speaking, there aren't loans without co-signers for most international students. And there are very few grants.

Potentially, these students can get loans in their home countries. The best source of information on that is the country's ministry of education, and a good source of information on loans for international students is the Web site. I found the Canadian source listed there. It's the Canadian Higher Education Loan Program (CANHELP), which lets graduate students borrow up to $15,000 a year without a co-signer.

Q: What kind of help can part-time MBA students get if their employer isn't assisting with tuition? Can they borrow the same amounts of money as full-time students?


Typically, lenders require that you be enrolled at least half-time to be eligible for loans. I'm not aware of any limits on the amount you can borrow based on whether you're enrolled full- or half-time.

Q: Where are the best places to look for free money?


Besides, other sources of information about scholarships and free money include your public library. Don't look just for books -- it may have a bulletin board where small local awards are posted. Similarly, the financial-aid offices at colleges to which you're applying may be a good source of information. Before reading any book, check the copyright date. If the book is more than one year old, it's too old to be useful.

Q: Does having a good academic record help in securing loans?


Generally speaking, it's irrelevant. Lenders are looking for good credit risks, not good students. For scholarships, academics does make a difference. There's also an interesting alternative to loans, called Instead of borrowing money, the company gives you a grant, which you agree to repay at a set percentage of your future gross income for a certain number of years.

The percentage is based on your major, what field you're going into, what career you're pursuing, what school you're attending, and your academic background, what your GPA is. Not everyone automatically qualifies for the grant, as private investors fund the site, and amounts of money and repayment terms vary from individual to individual.

Q: Is there anything waitlisted students should be doing now to secure funding for if and when they get accepted?


Research lenders to figure out your best options. But generally, you can't get a loan until you have a letter of admission. The school has to certify your eligibility for a loan and can't do that until you're admitted. Also, make sure you've filed the FAFSA as early as possible.

Q: How much is too much when it comes to borrowing money for B-school?


To give a good rule of thumb, if you're borrowing $50,000 under the Stafford Loan program with a 10-year repayment, you should be earning at least $50,000 to $60,000 a year. So if you're borrowing significantly more than that -- if there's more than a 1:1 ratio between the total loans and what you expect your salary to be -- you're probably borrowing too much. Otherwise, the repayment obligations will put you in financial difficulty after you graduate.

Q: Are you keen on particular lenders?


I really can't answer that question. My site is sponsored by a particular lender, and I just give general advice, which is to pick the lender that best matches your criteria. If you're looking for the lowest-cost loan, pick the lender with the lowest interest rate. If you're looking for the most flexible repayment provisions, look for the lender that has repayment provisions that meet your needs. Generally, Stafford loans have the least cost and have a good selection of flexible repayment provisions.

Q: How much can you reasonably ask for in "living expense" money on top of your tuition cost?


The school will provide what's called a "student budget," which is what the school says the typical student needs as living expenses. Often, there will be different budgets for different categories, such as single students, married students, married students with children. So the amount the school says you can borrow will be based on the cost of education plus the amount of the student budget, less any financial aid you've received.

If your expenses are unusual, such as medical expenses, make the school aware of this so that it can adjust the budget figure. Once again, don't borrow more than you really need to.

Q: Can prospective students start a 529 plan to put pre-tax money in a college fund?


That's a good question. I don't see why not. It gets you a tax advantage. The restrictions for 529 plans are an immediate family member. The student is certainly an immediate family member.

Let me explain the Section 529 plan. It's a way of saving for college in a tax-advantaged manner. It's akin to a 401(k) or IRA, but its purpose is college education, and money that is earned in a 529 plan is exempt from federal taxes. For financial-aid purposes, it's treated as an asset of the account owner, not the beneficiary. In some states it's also state tax-exempt. If you use the money for a purpose other than education, it becomes taxable with a 10% penalty. The 529 is among the best ways of saving for college.

Q: What's the impact of mortgage for someone who will need a loan to finance an MBA?


A mortgage or other pre-existing debt will be considered by the private lender when judging your creditworthiness and ability to repay. Strictly speaking, lenders won't allow you to borrow more than you can reasonably afford to repay, so if you have high pre-existing debt, that will limit your ability to borrow under private loan programs.

The federal Stafford Loan program has no creditworthiness test, so a mortgage and other debt will have no impact. But you want to avoid borrowing too much because many students who borrow to pay for their education and then have other sources of debt, such as credit-card debt, run into trouble. So you want to minimize your total debt. However, another option for those who own their homes is a home-equity loan. So you should compare the cost of home-equity loans with the cost of other loans.

Q: I have been accepted by a couple of schools, but am unsure of where I will eventually go. How far can I proceed in the loan process before deciding?


You should not sign a promissory note until you've decided which school you will be attending.

Q: Any last bits of advice for us, Mark?


Yes, again, don't borrow more than you can afford. And for more information, check these web sites: for scholarships, my site for general financial-aid information, for federal student aid information, and for international students.

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