Higher Education Price Index (HEPI) Doubles for Fiscal 2011

higher_education_costsCommonfund Institute has released its annual compilation of the Higher Education Price Index (HEPI) for fiscal 2011, which ended on June 30, 2011. The FY2011 HEPI calculation reveals that the inflation rate for colleges and universities was 2.3%, more than double the 0.9% rate for FY2010 and reversing a decelerating trend that began in 2008. This compares with an annualized Consumer Price Index (CPI) – calculated using an average of monthly CPI index figures from July to June – of 2.0% for the same period.

There are eight cost factors that contribute to the HEPI regression calculation: faculty salaries, administrative salaries, clerical salaries, service employee salaries, fringe benefits, miscellaneous services, supplies & materials, and utilities. The regression equation assigns a different weighting to each cost factor, and therefore a change in one component may influence the final HEPI calculation more than another. The components that are most heavily weighted are faculty and clerical salaries and fringe benefits.

The rise in HEPI from FY2010 to FY2011 was caused by across-the-board increases in the inflation rate for every cost factor except administrative salaries and service employee salaries. In some cases, these increases were substantial.  For instance, supplies and materials costs went from a deflationary -1.3% in FY2010 to an inflation rate of 8.1%, a swing of 940 basis points (9.4%).  Utilities costs increased even more, from a deflation rate of -9.5% in FY2010 to an inflation rate of 4.0%, for a swing of 1,350 basis points.  Other factors showed smaller, but still material, increases.  Fringe benefits rose at a rate of 3.7%, up from 2.1% in FY2010.  Clerical salaries increased by 2.0%, up from a 1.4% rate last year.

The other four cost factors rose somewhat more slowly, with miscellaneous services up by 1.8% versus 1.1% in FY2010 and administrative salaries up by 1.7%, a decrease from 2.0% last year – the only cost factor to register a decline in its inflation rate.  Faculty salaries were up by 1.4%, a small increase over last year’s 1.2% rise, while the inflation rate for service employee salaries was unchanged from year to year at 1.4%.

HEPI is an inflation index designed specifically for higher education. It is a more accurate indicator of changes in costs for colleges and universities than the Consumer Price Index, as it measures the average relative level of prices in a fixed basket of goods and services purchased by colleges and universities each year through current fund educational and general expenditures, excluding research. It is an essential tool enabling schools to project future budget and funding increases required to maintain real purchasing power and investment.

HEPI has been calculated every year since 1983 and includes inflation data going back to 1961. Since FY2002, HEPI has been based on a regression formula. In 2005, Commonfund Institute assumed responsibility for maintaining HEPI and calculating its annual rate of change.

Matthew Tabor

Matthew Tabor

Matthew is a prolific, independent voice in the national education debate. He is a tireless advocate for high academic standards from pre-K through graduate school, fiscal sense and personal responsibility. He values parents’ and families’ rights and believes in accountability for teachers, administrators, politicians and all taxpayer-funded education entities. With a unique background that includes work in higher education, executive recruiting, professional sport and government, Matthew has consulted on new media and communication strategies for a broad range of clients. He writes the blog “Education for the Aughts” at www.matthewktabor.com , has contributed to National Journal’s ‘Expert’ blog for Education , and interacts with the education community on Twitter and Google+.