Google just announced that they are offering a free hosted suite of applications for businesses. They even allow the business to use its domain name. At present, the "suite" is basically the calendar and email program, but their word processor, Writely, will be added soon.
Google is also reaching out to schools. While I'm not sure their system would be usable for k-12 students, it might be fine for a small university. It could also be useful for the staff of a k-12 school. Obviously, one does need to have reliable and fast Internet access to use such a system. And it is clearly not a replacement for Microsoft's Office suite by an imagination at this point. But, if your school is looking for fairly simple features and is very cost sensitive, this Google solution could be what you're looking for.