BOSTON - HARVARD University is considering spending cuts because the economic slowdown may reduce federal grants and the school's substantial endowment, President Drew Faust said on Monday.

Harvard's endowment posted an 8.6 per cent return and grew to US$36.9 billion (S$55.4 billion) in the fiscal year that ended June 30.

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

Mr Faust's spokesman on Monday declined to say how much the endowment has lost during the current economic turmoil.

'We must recognise that Harvard is not invulnerable to the seismic financial shocks in the larger world', Prof Drew Faust wrote in an e-mail to faculty, staff, students and alumni. 'Our own economic landscape has been significantly altered.'

'Our principal sources of revenue are all likely to be affected by these new economic forces', she said, citing a report by US credit-rating agency Moody's Investors Service that projects a 30 per cent drop in the value of college and university endowments this fiscal year.

She said contributions from donors and foundations could shrink, while federal research grants and contracts will reflect 'the intensified stress on the federal budget'.

'We have to think not just about what more we might wish to do, but what we might do at a different pace or do without', she said, adding that spending cuts need to be considered for this year and next.

Like many institutions facing the prospect of a global recession, Harvard is examining the cost of its workforce - comprised of some of the best-paying jobs in academia.

'Changing financial realities will require us to look carefully at compensation costs, which account for nearly half the university's budget', she said.

Harvard would resist big tuition increases, she suggested.

And financial aid programmes such as scholarships will be maintained at their current levels.

Tuition would be kept to 'moderate' increases, Prof Faust said.

A Harvard education costs US$47,215 a year for tuition, room and board.

Harvard was also assessing a multibillion-dollar campus expansion into Boston's Allston district across the Charles River from its main Cambridge campus that would include a science complex, museum, housing, parks and a public square.

'We are assessing all aspects of our ambitious capital planning programme, including the phasing and development of our campus in Allston', Prof Faust said.

Some US colleges and universities, their endowments shrinking along with stock markets, are expected to raise tuition more than usual to compensate.

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

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