Unfortunately I'm not very familiar with FF or Balamb, or much of anything in that genre, but gritty and physical works. I like the idea of the school as an international entity, especially since this will be at the height of the age of empires when nationalism was becoming a really powerful force. That would put us on the side of humanity as a whole and often at odds with the designs of the great powers. Iceland might be a good location - close enough to the centers of power, but enough off the beaten track as to possibly be off their radar.
Ideas I have so far - let me know what you think:
-The earth is criss-crossed by a network of ley lines that are conduits for magical energy which is more powerful the closer you get to a nexus, or a point where lines intersect. Magical energies ebb and flow along these lines, and according to some logic which no one has fully sussed out, at intervals different nexi/nexuses(sp?) will surge with power which is something mages covet as it makes the strongest enchantments possible and allows them to distill large quantities of Essence for later use.
-The Shadow Earth is also crossed by a matching pattern of these lines which operate similarly. When the same nexus surges on both worlds, tremendous energies are produced which create rifts in the fabric of reality and allows things to travel between realities. Things could mean people, creatures, or corrupting energies as the locations near the rifts move toward a kind of equilibrium. Luckily, these rifts tend not to stay active for very long....
-If one of the great powers should discover a way to lock one of these rifts open, they would have access to amazing magical power which would totally upset the balance of power and likely lead to a massive war.
-The Academy and its predecessors have been around for a long, long time (since ancient Egypt); know certain mystic secrets which they keep jealously guarded; and have made it their mission to root out corruption caused by the rifts and hunt down any Shadow Walkers they can find, as well as any of their collaborators who might be trying to use them or their powers for their own ends.
-The previous Academy, which was located in Britannia, was compromised a decade or so ago and destroyed by someone (most probably the British government, but it remains unproven), with devastating loss of life. The institution is now rebuilding in a new location and keeping this a secret is of the utmost importance.