Sunday, December 14, 2008

Wall Street Journal: K-12 Schools Slashing Costs; College Bills Wallup Families

I've been waiting a long while for this headline to finally hit the masses; as I wrote in July

As tax revenue from both the home "fake boom" and consumer spending "fake boom" dwindle, state and local budgets are now becoming an issue. And we have not even faced the real "unemployment" depths that will be hitting within the next 12-18 months. Much like subprime was the leading edge of the mortgage crisis, I believe school budgets especially will be the canary in the coal mine and where the first stresses will become "major stories". Budget year summer 08 to summer 09 will be bad. Budget year summer 09 to summer 10 is going to make this year look like a picnic.

And so it begins to hit the mainstream; look for teachers to join autoworkers, newspaper workers, mortgage brokers, realtors, ex investment bankers, retail workers, and the like. But not to worry - the federal government can backstop every K-12 school in America. And former teachers will become future crane operators in the "a new road in every backyard" Obama plan.

Keep in mind some of the more healthy areas like Seattle and Virginia are already seeing the stresses; just imagine how it will be for the unhealthy areas.
  • As state governors warn of significant shortfalls in their budgets, many schools districts are facing the biggest cutbacks they've seen in decades. And in some cases, they're already slashing.
  • In Virginia, the Fairfax County school district is considering everything from increasing class sizes to eliminating certain high-school sports starting next fall. In Florida, the Broward County School District is looking at thousands of layoffs and eliminating certain courses and activities. The Seattle School District is even considering shuttering certain schools. This year, the Los Angeles Unified School District has already reduced 600 administrative jobs at headquarters and delayed textbook purchases.
  • These moves have fired up parents. Julie Jackson, the parent of a fourth-grader at Kettering Elementary School in Long Beach, Calif., says parents there have for several years been raising money for salaries, supplies and programs that the state should be paying for in the first place. She and other parents are petitioning the governor and members of the state legislature to stop any further cuts. "The parents are now at a breaking point," the petition states.
  • Job losses are cutting into state income-tax revenue; the erosion of home values is hurting property-tax revenue; and the drop in consumer spending reduces revenue from sales tax. (hmm, could of pulled this straight from the blog in 2007) As a result, 37 states are projecting midyear shortfalls this fiscal year. Based on how things are going, the center estimates that total state budget gaps for next fiscal year will likely be around $100 billion, almost 10 times what it was last fiscal year (not a problem. $100B is about a week's worth of printing in Washington D.C. - all problems solved in under a fortnight - shall we FedEx you the money?) (Editor's note: Now Mark, with the 2009 2nd half recovery we have nothing to worry about. Mark to Editor: Shut up)
There is more, but you get the gist. Our canary is arriving and boy is he covered in a lot of soot; that coal mine is deep!

Meanwhile back in our halls of higher education... another of our predictions is beginning to work out nicely. Abandoment of colleges by many shall ensue next year. As we wrote in October

At some point the discounted cash flow model is going to show that it is better to begin work at 18 - at a lower wage - and skip the 4 years of wasted earnings potential plus the massive debt many are now being forced to pay off from their higher education. In fact, I would not be surprised if we've already passed that point for many careers outside law, medicine, and the like.

So combine the already ridiculous pricing with a real consumer led recession and you get outcomes such as this. But again, don't worry - the federal government will backstop every tuition in America, along with every loan.
  • The day after Thanksgiving, Glen O'Brien had bad news for his two children, who were visiting from college. With his electronics business pummeled by weak demand, he told them he couldn't afford to keep paying their bills at New York University.
  • "We were both completely in shock," recalls his daughter Caitlin, a junior majoring in Spanish. She was looking forward to spending her spring semester abroad in Chile. Instead, she is planning to move back to California, get a job and take cheaper courses at a state college. She hopes to return to NYU next fall. The school costs about $50,000 a year for tuition, room and board, and fees. (sounds reasonable, I assume they are teaching people how to create gold out of thin air for the $200K 4 year degree?)
  • As the economy shrinks, joblessness expands and small-business owners lose income, many students and their parents are struggling to make payments for the second half of the academic year, which are typically due this month or in January.
  • Experts say it's too early to tell what effect the recession may have on overall college enrollment, which typically rises in downturns as the unemployed who can afford it flock to schools for retraining. Yet next fall is shaping up to be a nerve-racking time for many colleges, who are also coping with shrinking state subsidies and endowments.
  • Many students are already making painful adjustments, including dropping out, borrowing more to stay in school, transferring to cheaper schools or taking on part-time jobs.
  • At Colorado College, which costs about $47,000 a year and has 2,000 students ...(wow)
  • Ms. Cobi├ín says she was expecting to graduate with about $30,000 in student-loan debt, but now "it's gonna be higher." (note to students: it's time to begin learning about discounted cash flow models - we have now reached the point its just plain stupid to pay $200K for 4 years and saddle yourself with debt, unless your yearly income is 150% of high school graduate)
  • Debbie O'Donahue, who says she is carrying more than $100,000 in college debt for her three sons, is borrowing again to put her fourth son through Lock Haven University, a state school in Pennsylvania. "I don't have a choice," she says. "If I don't do it, he's going to leave college."
  • All of that has left Michael, 19, scrambling for money to stay at Chicago for the quarter that begins after Christmas. He already has some grants and student loans, covering about $20,000 of Chicago's $50,000-a-year bill. (Seriously, where is the revolt against these prices....I could understand $10K, $15K, heck $20K - but $45-$50K? ) Michael, who studies philosophy and Spanish, is now considering asking his step-grandfather for a loan. He says he may skip the winter quarter and transfer to a cheaper school next year.
  • Community colleges, where tuition is a fraction of what private universities charge, say more students are looking to transfer from more-expensive schools. At Brookdale Community College in Lincroft, N.J., where tuition is about $1,700 a semester, "we are getting heavy phone volume from people looking to transfer midyear," says Michael Bennett, director of financial aid. Brookdale has also seen "a dramatic increase" in financial-aid applications for spring, he says. (community colleges should have a banner few years)
Thankfully the colleges charging these fees are seeing "little" problem
  • NYU spokesman John Beckman says the financial crisis hasn't had a big impact on the school. "Things look little bit different than last year, but not a lot different," he says.
  • Susan Art, dean of undergraduate students at the University of Chicago, says the school hasn't yet seen a huge impact from the recession.
I can sleep well at night knowing prices can go up next year, and colleges won't suffer from a drop off... whew! I wonder how this alternative reality will stack up when I write about this a year from now. Somehow I believe we'll look back at these quotes with wry smirks. (Editor's note: no you won't, 2nd half 2009 recovery will cause us to smirk at you. )

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