Despite amassing nearly $37 billion in endowment, Harvard University is warning that the economic slowdown has reached America's richest university.

President Drew Faust said Monday the school is looking at ways to cut spending and will review compensation costs, which account for nearly half of the budget.

Harvard also is reviewing its ambitious expansion programme, including plans announced early last year to expand across the Charles River from its Cambridge campus into Allston, she said.

The university is considering the steps because the economic slowdown might reduce federal grants and the school's substantial endowment, Faust said.

Unprecedented losses

"We need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial restraint," she said.

Harvard's efforts to address the economic downturn mirror what is happening elsewhere in the country, including other Ivy League schools. While wealthy schools can fare better in a downturn, they are also seen as vulnerable to prolonged market slumps because they tend to fund a greater portion of their budget from their endowment.

Dartmouth College has announced that it would cut spending after its endowment, which also makes up about a third of its budget, lost US$220 million.

Trustees blamed the loss on poor returns on stocks and bonds because of the Wall Street meltdown.

Last week, Brown University announced a hiring freeze through January and said it would review its capital budget to determine which projects could be delayed. Cornell University also recently announced a 90-day halt of construction projects and a pause on hiring staff members from outside the university through the end of March.

Budgets under strain

"Virtually every college and university, their budgets are under strain, stress, for a variety of reasons," said Matthew Hamill, a vice-president of the National Association of College and University Business Officers.

Faust's spokesman declined to say much Harvard's endowment has lost during the current economic turmoil.

Faust noted in an email to faculty, staff and students that Moody's, the financial research and ratings service, has projected a 30 per cent decline in the value of college and university endowments in general in this fiscal year.

If that were applied to Harvard's endowment it would mean a drop of US$11 billion, but because Harvard's endowment is so large and so diversified it is more insulated from market volatility.

In the fiscal year that ended June 30, Harvard's endowment posted an 8.6 per cent return and grew to US$36.9 billion.

However, the school lost 12.7 per cent on its US stock portfolio and 12.1 per cent on its foreign equity portfolio during that time.

Faust warned in her email that "we must recognise that Harvard is not invulnerable to the seismic financial shocks in the larger world. Our own economic landscape has been significantly altered".

The school still intends to implement initiatives to make education affordable to students from low- and middle-income families, and will ensure that those with income below US$60,000 will pay nothing to send children to Harvard College.

Those earning up to US$180,000 can expect to pay no more than about 10 per cent of their income, she said.

Graduate and professional schools will keep financial aid budgets at current levels.

- AP