Business costs for colleges rose 2.7% in the 2021 fiscal year

Dive Brief: 

  • Business costs for U.S. colleges rose 2.7% in the 2021 fiscal year, according to data from Commonfund, an investment manager that has been publishing higher education’s inflation rate since 2005. 
  • Commonfund says the Higher Education Price Index, or HEPI, is a more accurate indicator of cost changes for colleges than the Consumer Price Index, or CPI, which tracks inflation more broadly in the U.S.
  • The 2.7% rate marks an increase over last year’s HEPI rate of 1.9% and is slightly above the five-year average of 2.6%. It also exceeds the CPI, which rose 2.3% in fiscal 2021, though Commonfund’s report said it’s typical for HEPI to be higher than the CPI.

Dive Insight: 

Commonfund released its annual HEPI report at a time when inflation has been grabbing national attention. The CPI rose 6.8% in November over last year, the largest annual change seen since the early 1980s. The latest HEPI rate does not yet cover the months where the U.S. CPI rate has soared. 

Analysts at bond ratings agencies say these high rates are likely to drive up spending at colleges, undercutting expected revenue gains from a return to in-person learning, high endowment returns and strong state budgets. They said it’s unclear how long inflation will remain high. 

The Commonfund report looks back on the higher ed sector’s cost increases during the 2021 fiscal year, which spans July 1, 2020, to June 30, 2021. It found business costs increased year over year across all eight categories HEPI tracks: faculty salaries, administrator salaries, clerical costs, service employees, supplies and materials, fringe benefits, miscellaneous services, and utilities. 

Half of the categories saw rate increases in fiscal 2021 that were higher than their five-year averages: utilities, supplies and materials, fringe benefits and service employees. The rest grew at rates below the five-year average. 

Half of categories saw cost increases above their five-year average

HEPI category rate increases in fiscal 2021 compared to the five-year average

The sharpest increase came in utilities, which rose 15% in fiscal 2021 after falling 15.7% the year before. Historically, this category has been the most volatile in the index, rising by double digits three times since the 2015 fiscal year and rising by less than 2% in two other years. 

A similar trend played out in the supplies and materials category, which rose 3.5% in fiscal 2021 after declining by an equal share in fiscal 2020. 

Meanwhile, costs for faculty salaries, HEPI’s most heavily weighted category, slowed in fiscal 2021. They rose just 1%, compared to 2.7% in fiscal 2020. 

The rate differed across institution types. Faculty salaries rose 1% at public institutions but were unchanged at private institutions. 

Similar differences for fringe benefits were seen across institution types. While their costs rose 7.3% in fiscal 2021 at public institutions, they declined 3.5% at private colleges.

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