A Tightwad's Guide to Financial Aid

This month millions of college applicants will find out if they've been accepted to their top-choice schools. But an even bigger question mark remains for many: Will they be able to afford it?

In today's tough economy—with banks folding, legislation changing, and layoffs looming—many young people find themselves questioning whether they can afford to pursue higher education. And it's not just college applicants, either. Tuition costs for two-year MBA programs at top-tier business schools are now approaching, or exceeding, the $100,000 mark, making financial aid an issue for MBA applicants as well. With endowment losses putting pressure on many business schools to cut costs, most have refrained from cutting financial aid—for now. But international students haven't been so lucky. Many are scrambling to find financial aid alternatives after two popular "no co-signer" loan programs were canceled late last year.

The bewildering array of grants, loans, and other types of aid leaves many applicants scratching their heads. Here are a few tips that may prove helpful in negotiating today's tricky financial aid landscape.

Apply Early

Some students decide they don't want to deal with the Free Application for Federal Student Aid (FAFSA) until they find out if they've been accepted into the school of their dreams. This is a mistake. "The institution may presume you don't need any money to go to school," says Philip Day, president of the National Association of Student Financial Aid Administrators. "Those who filled out an application are at the front of the line. You're in the back."

Some students may still get the financial aid they need even applying late in the process, but the rule of thumb is a simple one: Earlier is better.

Blind Is Better

A "need-blind" institution is one that does not consider your ability to pay when vetting your application. It will do whatever it can to fill in the gaps and make sure you can pay for your undergraduate or graduate education.

Unfortunately, with the economy tanking and many endowments suffering, fewer colleges are advertising themselves as need-blind institutions. This means that it's a question mark as to whether the financial aid package they offer you will, in fact, provide the assistance you'll need to pay your tuition bills.

If you're a candidate who knows you will need fairly substantial financial aid package, this is an important point to consider. Is the institution—should you prove qualified to gain admission—going to do everything possible to make sure you can attend, regardless of your financial situation?

Don't Be Afraid to Negotiate

That's right: haggle. High-priced, mid-tier private institutions are watching some of their hottest prospects defect to local public schools, where tuition is considerably lower. So if you've been accepted to some of those high-priced outfits, you've got some bargaining power. Ask nicely, and they might just sweeten the deal. If you're somebody they want—somebody with near-perfect SAT scores, for example—they're going to have to be flexible on aid or else you're walking out the door.

How do you play the haggling game? If you get into five schools and receive the best financial aid offers from your four B-list schools, go back to your A-list school and ask if it would be able to make any adjustments to your package. You might be pleasantly surprised.

Even some MBA programs will entertain such discussions. Brenda Knebel, the MBA admissions director at Purdue University's Krannert School of Management, says she won't always be able to raise the award, but sometimes she can. "If our financial package has not matched somebody else's, I would like to be in a conversation with someone and have the opportunity to say 'no' or to say 'yes,' rather than having them completely nix us off the list without giving us another chance."

Dad Laid Off? Negotiate Some More

If a parent loses a job, many students might be tempted to drop out because of their inability to pay for their education. That would be a huge mistake. Financial aid is not set in stone for your entire undergraduate career. In fact, if students go to their institution and talk to the financial aid director about their sudden inability to pay, adjustments are many times a realistic possibility.

With the federal government, you don't even have to ask. Government assistance such as Pell Grants, which are based on your parents' income, will increase immediately if one of them loses a job. "Nobody ought to ever assume because their economic situation has changed that their response should be, let's pull Johnny and Sue out of school," says Day. "[Schools] have the ability to reconcile that situation and try to figure out a way to adjust the package so [the student] can get more aid."

Sadly, Pell Grants are not available for MBA students, but the same principle holds true. If your financial situation suddenly takes a turn for the worse—you're in a part-time program and you lost your job, or the savings you thought would tide you over for a two-year full-time program suddenly evaporate—you shouldn't toss in the towel. You should call the financial aid office.

Beware Private Loans

These loan options are riskier than ever because of the tenuous positions in which many financial institutions find themselves. A federally guaranteed option is more often than not the best choice. They don't require a recipient to begin paying a loan until after graduation, whereas private loans often require a payment plan starting immediately. And the rates are better. With private loans, students are forced to pay "an extraordinarily high interest rate," says Day. "It's almost comparable to credit card."

Another wrinkle: Many private loans require students to have a parent or other adult figure as a co-signer—if the student defaults on the loan, the co-signer is on the hook.

If you're borrowing to finance your education, you're in good company—about two out of three undergrads and half of all MBA students graduate with some kind of student-loan debt. But not everyone qualifies for federally guaranteed loans, which are based on need and awarded only to U.S. citizens.

If private loans are your only option, financial experts suggest considering the unthinkable: find a cheaper school.

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