By Scott Olster, associate editor

School has truly been out for the summer this year, as thanks to budget woes, many districts across the country have been forced to cut their summer school programs down to the bare minimum, or cancel them altogether.

One educator from Floyds Knobs, Indiana told Fortune that $6.

5 million had been cut from his school district’s general fund. But public schools have an obligation to keep kids on track, leading to an allegedly cheaper kind of education: virtual summer school.

After an 80% summer-school budget cut, 320 Floyds Knobs summer school students will be clicking their way through subjects like algebra, history, and chemistry using an educational software program called the Stars Suite.

Floyds Knobs has accepted summer school students from nearby Langsville, Salem, and Greater Clark, all of which have had to cut summer school altogether for budgetary reasons.

“They don’t want to spend the money at all,” says Louie Jensen, the principal of Floyd Central High School. These schools are not alone.

In Loudoun County, Virginia, which regularly ranks among the highest household incomes by county in the U.S., public school students will need to pay $695 to participate in a virtual summer school program offered through a partnership with nearby George Mason University.

Students there will either have to take their courses from home or from a public library, as the school district has not provided a computer lab for summer school. And students who cannot afford the tuition are simply out of luck as financial aid is out of the question.

Over a third of American schools are considering eliminating summer school altogether for the 2010-2011 school year, according to a recent survey by the American Association of School Administrators. Many of the cuts are due to state budget problems and the wind-down of stimulus funding.

Virtual education: not just for summer school

Schools and state governments have begun to take notice of the potential savings that virtual education can provide, with Florida, Arizona, and Alabama even establishing state-sponsored virtual school programs that offer courses to thousands of students a year.

The Florida Virtual School runs all year long, does not have a specific academic calendar, and has a staff of 1,000 full-time teachers that is on call seven days a week from 8 a.m. to 8 p.m., a significant shift for teachers used to working during typical schools hours from September to June. The school plans to enroll close to 240,000 students from 45 states and 30 countries this year, most of whom will only take a course or two with the school.

“We’re growing every year by 30 to 40%,” says Andy Ross, who is the chief sales and marketing officer at the Florida Virtual School. Ross claims that Florida Virtual School has saved Florida $22 million last year by offering its virtual courses to students.

“We don’t have school buildings, we don’t have buses, we have lower costs,” says Ross.

While school districts have suffered from budget setbacks, the companies that provide virtual learning software have seen significant enrollment increases this summer.

Pearson (PSO), one of the largest educational publishers in the world, said that it delivered 1.3 million hours of virtual lessons to students through its NovaNet virtual learning program in June alone, a 30% increase from the previous year.

And Portland-based Aventa Learning has seen enrollment in its online courses increase six-fold from the previous school year, from 2,000 to almost 13,000. Aventa has a contract with the Chicago Public Schools this year that is worth approximately $500,000, according to Robin Gonzalez, the school system’s manager of distance learning. Indeed, Fortune has learned some Chicago school teachers who were laid off this year were later hired by Aventa, for less pay.

The U.S. market for online learning, which includes programs for students as well as employees, reached $16.7 billion in 2009 and is expected to grow to almost $24 billion by 2014, according to an Ambient Insight report.

Public schools are actually turning to virtual education to stay competitive with home schools, private, and charter schools that threaten their enrollment-based state funding.

Despite the cost-savings and the added flexibility, virtual education is far from a stand-alone solution to the public school system’s woes.

“Online sounds wonderful for middle class homes. But how many have access to a computer at home? Our libraries are closing down. A lot of our students don’t have access to computers at home,” says Alvaro Cortes, who is an assistant superintendent at Los Angeles Unified School District.

Los Angeles’ schools cut its summer program down to the bare minimum this year, with the elementary and middle school summer programs entirely canceled and the high school program strictly focusing on students who have failed courses and need to earn credit to get on track to graduate.

Around 980 Los Angeles public school students are taking online courses this summer as part of a pilot program, a small number considering that 68,000 L.A. students are in summer school to make up for courses they failed. While the district has opened up some of its computer labs to the online students, Cortes says that the virtual model still saves the district money.

“Next year, we’re going to be looking at carving out more in our budget for online,” says Cortes.

One side effect of learning from the couch? Many traditional summer school programs offered physical education, breakfast, and lunch components. Most virtual education replacements do not.

“There’s a lot of research that shows that kids put on weight at a much faster rate during the summer than they do in the school year,” says Jeff Smink of the National Summer Learning Association, who also says the programs should incorporate in-class learning, virtual education, and physical activity.

“There is a role for the virtual schools,” says Smink. “I just wouldn’t say that it is a silver bullet.”