Finance

Higher Education Price Index Climbs to 2.3%, as Utility Costs Rise

September 14, 2011

The Higher Education Price Index rose to 2.3 percent this year, the result of rising supply and utility costs, according to an annual report released on Wednesday by the Commonfund Institute. The increase, which was more than double last year's rate, outpaced the rise of the Consumer Price Index, as it does most years.

The higher-education index, known as HEPI, measures the average cost of what colleges pay for each year, from administrative salaries and dental plans to cafeteria food and electricity. Supply and material costs, though just a small factor in the weighted-average index, drove the HEPI higher with a 9.4-percentage-point increase, from a minus-1.3 percent in the 2010 fiscal year to 8.1 percent in the 2011 fiscal year, which ended on June 30. Utility costs, which are related to oil and gas prices, soared to 4 percent this year from minus-9.5 percent last year.

Only administrative salaries and service-employee salaries declined or remained steady, as almost every HEPI factor rose (the index does not measure research expenditures). Last year the picture was just the opposite.

The cost of doing business began to drop three years ago, driven by sinking supply and utility costs. The heaviest factor in HEPI's weighted average calculation, faculty salaries, was stagnant last year—in 2011 they rose slightly, to 1.4 percent nationally. Together, supplies, materials, and utility costs account for only 12 percent of the index; wages and fringe benefits are the real drivers, accounting for 85 percent of the measure.

Since 2009 the HEPI has also measured inflation by region, dividing the country into nine parts. The East South Central region, which encompasses Alabama, Kentucky, Mississippi, and Tennessee, has the highest inflation rate this year, at 3.4 percent. In that region, fringe benefits rose from minus-5.5 percent last year to 9.4 percent in 2011. The West South Central region, encompassing Arkansas, Louisiana, Oklahoma, and Texas, held the lowest inflation rate, at 1.4 percent. Faculty salaries rose significantly in the New England region (2.1 percent) and the Mid-Atlantic region (about 2 percent).

The Commonfund Institute, a Connecticut-based organization that has reported the HEPI since 1961 and every year since 1983, does not compile price and cost data for each factor, such as administrative salaries. Rather, the institute gathers data from several sources, including the U.S. Bureau of Labor Statistics and the American Association of University Professors.

From a historical perspective, an inflation rate of 2.3 percent for colleges and universities is still low. In the 1970s and 1980s, the HEPI was significantly higher. In 1981 the rate was 10.7 percent. In the past 10 years, 2006 saw the highest HEPI, at 5.1 percent, driven by a spike in administrative salaries and fringe benefits.

William F. Jarvis, managing director and head of research for the Commonfund Institute, said in an interview that about 150 of the 850 colleges that respond to its survey, which is done in partnership with the National Association of College and University Budget Officers, use the index in formulating their budgets.