It’s increasingly expensive to operate a college – but not for the reasons one might think.
In fiscal year (FY) 2014, inflation for goods and services charged to colleges was 3 percent, according to the Higher Education Price Index (HEPI). That’s a “substantial” increase from a rate of 1.6 percent in FY 2013, according to the 2014 HEPI report – and it’s due in large part to two particular factors: supplies/materials and utilities.
The industry-specific inflation index measures “the average relative level in the price of a fixed market basket of goods and services purchased by colleges and universities each year through current fund educational and general expenditures, excluding research,” according to the report. HEPI looks at eight cost factors: faculty salaries, administrative salaries, clerical salaries, service employee salaries, fringe benefits, miscellaneous services, supplies and materials, and utilities. The inflation costs of the last two factors accounted for much of the overall increase.
Inflation in the cost factors for both supplies and materials and utilities has been volatile over the past several years, according to the HEPI report. The inflation rate for supplies and materials has dipped and risen since FY 2010 but, in FY 2014, rose to 11.2 percent. Utilities’ rate of inflation rose nearly as high, to 8.1 percent.
Not every cost factor group experienced inflation. Faculty salaries, for instance, stayed mostly flat, rising .5 percent from 1.7 percent inflation in FY 2013 to 2.2 percent in FY 2014. Clerical salaries and miscellaneous services had no change, and administrative and service employees salaries decreased.
In light of the continued focus on college cost, this report demonstrates that institutions have a unique operating cost structure. Institutions are often compared to other industries, particularly in relation to their cost to students as a function of the traditional consumer price index (CPI). Unlike the traditional CPI that can more easily control for a change in quality of consumer goods on a year-over-year basis, the overriding cost to a college or university are the salaries and benefits of their faculty. Differences in instructional styles, materials, and overall mix of personnel on a campus are difficult to control for when comparing across different academic years. Owing to this, the HEPI is most useful when deployed in long-range budget planning to preserve future purchasing power, and more weighing and implementing policy changes based on anticipated trends.
From a public policy standpoint, the HEPI is a helpful measure for partially explaining increases in college costs as it provides insight to the unique operational financing and structure of institutions of higher education.
Publication Date: 10/2/2014