Harvard Hits The Rich-Poor Gap.(Special Report; THE EDUCATION RACE)

Byline: Arian Campo-Flores

And now all the richest American universities are rethinking financial aid.

Jennie D'Amico first heard the news in an ecstatic e-mail from her father in Brewer, Maine. It was December 2007--the middle of her second year--and Harvard had just announced a range of new financial-aid policies aimed at easing the strain on middle- and upper-middle-income families like hers. The bottom line for D'Amico's parents: their expected contribution would plunge from a little more than $30,000 per year to about $13,000. It was, she says, "sort of, 'Wow, Harvard now costs less for me than the University of Maine'," where she had originally thought of going, largely for financial reasons. Until then, the D'Amicos felt as if they were in a "financial-aid black hole," as she puts it--neither poor enough to qualify for free tuition nor rich enough to easily afford an Ivy League education. (The D'Amicos' family income is a little more than $90,000.) Now "it's almost like Harvard is rewarding you for doing hard work."

Harvard's announced reforms quickly resonated far beyond its walls. Within months, a score of other well-endowed schools publicized their own aid overhauls aimed at middle- and upper-middle income families overwhelmed by the spiraling cost of higher education. The reactions were swift, impassioned and all over the map. While some hailed Harvard's move as enlightened, others charged that the university was acting out of self-interest--trying to nab every possible applicant and ward off lawmakers who have been scrutinizing endowment spending at wealthy colleges. Still others worried about the broader consequences for the country's poor students, as well as for more modestly endowed schools. Yet one thing was clear: the financial-aid landscape has inexorably shifted.

Harvard's initiative had three major aspects. The first, dubbed the "zero to 10 percent standard," decreed that families making between $120,000 and $180,000 annually would now be expected to pay no more than 10 percent of their income. For those earning less than $120,000, the percentage would steadily decline until reaching zero for incomes of $60,000 and below. That means a family making $120,000 would be expected to contribute about $12,000, compared with $19,000 before. The second component: all loans would be replaced by outright grants (a policy that Princeton enacted in 2001). And finally, in most cases Harvard would no longer consider home equity in determining a family's ability to pay.

How does Harvard explain its new policies? Based on research and anecdotal evidence, "it was really clear that we were just not getting the very good middle-income students to even think about Harvard" because it was perceived as too expensive, says William Fitzsimmons, dean of admissions and financial aid. Harvard's leadership also fretted about what Fitzsimmons calls the "upstairs-downstairs syndrome"--that the student body was polarizing into rich and poor, with little in between.

Other rich universities quickly responded. Yale announced cost reductions for families earning as much as $200,000, and Stanford eliminated tuition for parents earning up to $100,000. A cavalcade of institutions declared they were fully or partially replacing loans with grants, including Ivies like Dartmouth and Columbia, as well as liberal-arts colleges like Swarthmore and Pomona. Poorer schools, unable to match such generosity, have tried to stay in the game by promoting other enticements, like tuition freezes and the elimination of loan interest.