Princeton addressed this problem in late January with a series of bold and costly moves. It eliminated all loans for students whose families make less than $40,000 per year, replacing them with outright grants. For middle-class families making more, a large percentage of loans was eliminated.

Princeton also removed home equity from calculations of family worth--and expected family contribution--in a move aimed at middle-class families with money tied up in their homes. All changes apply to the incoming class of 2002 and future classes. They are predicted to cost $4 to 6 million annually.

Just two weeks later, Yale University followed suit, with a less-nuanced plan which ignored the first $150,000 of family assets--including home equity and savings--in calculating family contributions. These changes were applied to all current undergraduates as well as incoming students.

Aid insiders said Yale--which frequently fights Princeton for the same pool of middle-class students--had to change its policies or face serious recruiting trouble. Yale officials admitted after the announcement that "[their] timing was related to Princeton's announcement."

One week later, Stanford University made its play for the same pool of students. Refusing to be left behind, Stanford launched an original plan to use outside scholarships to eliminate student loans.

Under traditional policies like the one Harvard used through this spring, 60 percent of outside scholarships are applied towards reducing outright aid, and 40 percent towards cutting loans. Stanford now uses scholarships to completely eliminate loans and work-study before applying them against grants.

The next policy overhaul occurred a month later at MIT. Officials there reduced self-help requirements--loans and work-study contributions built into nearly every aid package--by $1,000 for all students. They said the changes were spurred by the increased generosity of Yale, Princeton and Stanford.

"When that stuff hit the news, it definitely entered into our decision-making process," said MIT Director of Financial Aid Stanley G. Hudson.

Finally, Penn weighed in with a strategy suited to its relatively small endowment. This plan strengthened an existing program which gave out merit based "preferential packages" to 100 outstanding and needy students.

These packages will eliminate all loan requirements and, officials hope, will attract a core of outstanding students without straining the capacity of Penn's nest egg.

Harvard's Ability to Increase Aid

Meanwhile, the state of Harvard's endowment seemed all semester to say what Harvard officials wouldn't: the University could pay.

This spring officials pointed to the fact that Princeton's endowment is larger per student than Harvard's as an excuse for their policy inaction.

But as Harvard's endowment climbed toward $13 billion, it seemed that only an unusually conservative financial policy prevented a formal increase in aid outlays.

Harvard has traditionally paid out about 4.8 percent of its endowment to support institutional operations in a given year. In recent years, as endowment growth has exploded, total payout has remained steady, making the current payout percentage about 3.7 percent and falling.