Tuesday, May 19, 2009

What's That Popping Sound I Hear?

Could it be the end of the education bubble?

Stanford University’s president said the school will have to cut costs and delay building projects amid a “financial shock wave.”

John Hennessy told alumni via email that Stanford plans to cut its $800 million general funds budget — which pays for most faculty and staff salaries, administrative costs and non-research expenses — by 10 to 12 percent over the next few years.

So far, most of this is the result of a major hit to the endowment, which has gone down the tubes much like most any other investment would have these days. But I'd bet schools begin to feel the pinch with tuition soon, too, as fewer people will be willing to go into debt and fork over big bucks to get into a contracting job market. As much is hinted:
Tuition cannot be raised significantly, Hennessy said, “out of fairness to our students and their families.”
Or, more likely, because it will hurt enrollment. The education bubble has been fed by major government subsidies just like the housing market was through GSE's like Sally Mae. Like the housing market, this has been going on for a long time. Expect something similar to what we have seen in housing in higher education.

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