Harvard overhauls financial aid to cut tuition costs

BOSTON, Dec 10 (Reuters) - Harvard University announced a dramatic financial aid overhaul on Monday that will slash the cost of tuition even for students from middle-class and upper middle-class families.

The Ivy League school, the world's richest with a $35 billion endowment, said it will pay $120 million a year so families earning up to $180,000 a year will pay only as much as 10 percent of their income on annual tuition and fees.

By spending an extra $22 million on financial aid every year beginning with the 2008-2009 academic year, a family making $180,000 a year will be asked to pay roughly $18,000, compared with about $30,000 today, Harvard said.

"We want all students who might dream of a Harvard education to know that it is a realistic and affordable option," Harvard president Drew Faust told reporters.

The initiative will affect more than half of Harvard's 6,600 undergraduate students, she said.

The cost of college has loomed large for U.S. families for generations. But tuition increases have ratcheted up anxiety among students and parents -- and raised criticism that elite universities have placed themselves outside the reach of most of the middle class -- just as experts insist Americans need more education to compete internationally.

Tuition and fees at public and private U.S. colleges and universities rose by more than double the rate of inflation this year, according to statistics compiled by the nonprofit College Board.

Harvard's tuition is currently $31,456. With room, board and services fees, the cost of attending jumps to $45,456 per year, for each of four years.

Harvard said it will also stop including loans as part of the financial aid packages offered to students, replacing them with outright grants, and stop looking at how much a family's home is worth when calculating aid packages.

The new policy is intended to help students choose careers they want instead of ones that promise hefty paychecks to pay off thousands of dollars in loans amassed to pay for their educations, the university said. "We want them to think more creatively about what they want to do with their lives," said William Fitzsimmons, dean of Admissions and Financial Aid.

The Harvard Financial Aid Initiative, announced in 2004, slashed the amount low-income students must pay to attend the oldest U.S. institution of higher learning.

Under that program, students from families earning less than $60,000 a year do not have to contribute to the cost of tuition. Those from families earning between $60,000 and $80,000 pay far less than they would have in previous years.

But as it eases the financial burden on students, getting into the prestigious school in Cambridge, Massachusetts, is getting tougher. Harvard received a record 22,955 applications for a spot in the Class of 2011 and accepted only 2,058 -- or 9 percent, the lowest acceptance rate in the school's history. (Editing by Patricia Zengerle)