Easing B-School's Financial Pain

As tuition -- which already costs upwards of $50,000 -- continues to rise, many potential students wonder how they can afford to get an MBA. The Tepper School of Business at Carnegie Mellon University in Pittsburgh awards financial assistance based on merit, like most B-schools. It takes many other aspects into consideration: a candidate's GMAT performance, undergraduate GPA, interview, résumé, letters of recommendation, and overall application.

About 65% of the Tepper incoming class receives some form of financial aid. The average debt MBAs graduate with is $65,000.

Bonnie Lack, associate director of financial aid at Tepper, recently fielded questions from audience members and BusinessWeek Online's Francesca Di Meglio and Jack Dierdorff. An edited transcript follows:

Q: Why does the Tepper School of Business have its own financial-aid office separate from the one for the university?
A: [Because of] the nature of our students and their specific needs. They require a little more expertise and attention. Being that our students are more affluent, coming from the professional world, they have more detailed issues. They often have families.

Q: When do schools release financial-aid information to students?
A: Typically, when a school receives your FAFSA [Free Application for Federal Student Aid], and more often than not, the supplemental financial-aid application, and you've been accepted to the program, you will then receive your financial-aid eligibility letter. Please note that you can put up to six schools on the FAFSA because, traditionally, B-school students apply to more than one school.

Q: How much does a student's current credit score factor into a school's financial-aid awards?
A: Your credit score is not a factor. It can, however, hinder you when applying for a private education loan.

Q: Is it common for students to finance 100% of tuition themselves?
A: Actually, this is very common. I always encourage people to borrow as little as possible, because the debt is waiting for you when you're done.

Q: Can you offer any advice on financial planning?
A: First and foremost, get your credit in order. Pay off any existing credit cards [and stop using them], and car payments, etc. Be aware of what you're spending. I would advise everyone to do that, not just prospective students. Realize that going to B-school is for a short time, and you need to adjust your standard of living. You spend most of your time at school.

I always tell my students, practice living as a student before school. For example, don't go out to eat as much. If you're thinking of coming to B-school in two years, now would be a good time to start taking care of financial obligations and putting money aside for your tuition.

Q: What should a student's budget be during the summer between the first and second year?
A: Typically, a student is away in the summer for three months on an internship and is -- I hope -- gainfully employed. Depending on the city in which students are attending their internship, they may be required to maintain a residence and pay rent. For this time period, you are unable to borrow, and a suggestion of about $2,000 per month would be a good budget figure.

Q: How can you best position yourself in a financial-aid application to maximize grants and scholarships, as opposed to loans?
A: Depending upon your school's criteria for scholarships, the best way is with a strong admissions application.

Q: What is considered when determining need-based aid?
A: Need-based aid is determined predominantly by your Expected Family Contribution (EFC) from filing your FAFSA. Your EFC is determined using your prior year's income tax returns, as well as your investment savings and net worth. But you can always petition the financial-aid office to reevaluate your case. Most will do this on a case-by-case basis.

Q: What percentage of incoming students receives enough aid to cover 100% of the attendance cost?
A: Nearly all. Only the ones who have bad credit have difficulty. This is why knowing your credit situation, and your credit score, should be a vital part of your planning. We've been quite successful at Tepper in helping students better their credit scores, clean up their credit reports, and secure private loans.

Q: If you're not granted any aid from Tepper during the first year, is it possible to receive any aid your second year?
A: There are a few academic awards available to returning second-year students that are based solely on academic performance, and the recipients are selected by faculty.

Q: Does Tepper assist incoming students with scholarship search?
A: We offer some resources to prospective students, while encouraging them to search independently. I've just created a new financial-aid library for our current students that is made up of scholarship books students can check out.

Any search engines [Google, AskJeeves] will be helpful, especially if you are broad in your search. If you drink Coca Cola, guess what? Coke has scholarships. If you take Tylenol for a headache, Tylenol has scholarships. But there's also Petersen, Fastweb, Finaid, and also a great [Web source of lists and information] created by a man named Isaac Black, called Blackexcel.org. If you attack [this search] with tenacity, there's money out there to be found.

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