Don't automatically scratch Harvard University off your college wish list because of its steep price.
The Ivy League school is overhauling its financial aid policies to attract more middle- and upper-middle-income students. Grants, for instance, will replace loans in undergraduate aid packages starting in the fall. And parents with incomes under $180,000 won't have to pay more than 10 percent of their income. That's a big discount at a school that costs more than $45,000 a year.
So if you have your heart set on Fair Harvard, apply. You still have to get in. But now you don't have to let the tuition stop you from even trying.
No interest in Harvard? You might benefit anyway.
Harvard isn't the first or only school to adopt a no-loan policy, and it won't be the last. In the past week, Duke University and California Institute of Technology also came out with plans to eliminate loans for lower- and middle-income students. The lesson in all this: Don't assume that you have to pay the full sticker price. Paying for college is like buying a car or an airline ticket - what you pay may not be the same as the next person.
"Higher education is a discounting industry," says Kalman Chany, author of Paying for College Without Going Broke. "They have been charging what the market can bear. The market is not going to bear these costs any more."
So, what should you do if applying to colleges soon?
First, parents and students must have a serious talk about the family finances and college, says James Boyle, president of College Parents of America. "It's sometimes a taboo topic within a family."
Cost, of course, shouldn't be the sole factor in choosing a school. And as we see, tuition discounts could be sizable at some of the priciest institutions. But this discussion about money is a necessary one, so "students and parents are on the same page of what the family can afford," Boyle says. It also would help later when evaluating aid packages, he says.
Next, do your research.
Some schools offer calculators on their Web sites that can give you a good idea of the aid package you would qualify for at that institution, says Matthew Reed, policy analyst with the Project on Student Debt.
His group's Web site, www.projectondebt.org, also lists schools with no-loan or loan reduction policies.
Princeton University was the first to adopt a no-loan policy for all financial aid students in 2001. Since then, more than 30 schools have added similar programs.
University of Maryland, College Park is one of them.
It created a no-loan program in 2004 for Maryland residents whose family income is low enough - $44,000 or less - that the family isn't expected to contribute to the cost of college. College is financed by grants and work study.
Last year, the university introduced a Senior Debt Cap program to reduce the amount of borrowing by students with family incomes of $70,000 to $120,000. Students who have accumulated $15,900 in federal need-based loans will receive a grant their senior year so they don't have to take out more loans.
Seniors must be Maryland residents who have attended the College Park university since freshman year. Seventy-nine seniors were eligible for the debt cap last year.
"I got 16 thank-you letters back," says Sarah Bauder, director of financial aid at College Park. "It is a high percentage, especially for financial aid. We usually get hate mail, not love letters."
Harvard a few years ago stopped requiring families with incomes under $60,000 to contribute to the cost of college.
Its new policy will affect families with incomes of $60,000 to $180,000. Families with incomes of $60,000 but under $120,000 will pay on a sliding scale, from zero to 10 percent of their income each year. Those at $120,000 and under $180,000 will pay 10 percent a year.
Today a family earning about $180,000 pays more than $30,000 a year for Harvard under the aid formula, compared with about $18,000 under the new policy, the school figures.
Also, Harvard will no longer factor in home equity when figuring how much families should pay. This could save an average of $4,000 a year for these families.
Harvard says it's trying to lessen the burden on families and to prevent students from being consumed by debt. Skeptics say Harvard's motives aren't entirely altruistic, noting growing pressure on schools by families and Congress to reduce student debt.
Whatever the motive, Harvard's action can only be good for students and parents.
Schools are concerned that they are pricing out middle-income families with cost increases that consistently outpace inflation. The average cost of college, including room and board, rose nearly 6 percent this year, reaching $13,589 at a four-year public college and $32,307 at a private school, according to the College Board.
Congress is talking about requiring colleges with hefty endowments to use some of that money to reduce tuition. At about $35 billion, Harvard's endowment is larger than the economies of more than half the countries in the world.
Pressure from families and Congress isn't about to abate anytime soon. That's good. With the spotlight on how the cost of higher education is affecting families, more schools may step up to escape the glare.
Questions? Comments? Want to share a financial tip with readers? Contact Eileen Ambrose at 410-332-6984 or by e-mail at email@example.com.