Wednesday, September 09, 2009

How Colleges Respond to an Economic Crisis

by Daniel L. Bennett

HEPI, the higher education inflation index, was released today for FY 2009 (ending June 2009). Apparently we are supposed to be congratulating higher ed for managing to limit its inflation index to 2.3% during the onslaught of America's worst economic crisis since the Great Depression? This same crisis has resulted in millions of Americans losing their jobs, homes and significant portions of their life savings; leaving them no choice but to reduce their spending habits significantly in order to make due, which in turn has had a deflationary effect on many goods and services.

There are great deals abounding on goods such as automobiles, homes, vacations, appliances, and on services such as casual dining, cable TV and utilities --due to the downturn in the economy. Even gas prices have normalized at around $2.50 a gallon. It seems that almost everything is less expensive today than a year ago except for the price of college. So excuse me if I'm not jumping up and down in my seat in excitement because the higher education inflation index only rose by 2.3% last year, especially when the
CPI-U decreased by 1.9% over the same period (July 2008 to June 2009).

It seems that there were a few bright spots in the index for FY 09. The cost of supplies and materials increased by only 0.9%, while the cost of utilities was actually down 15% from the previous year. But the good news ends there, as administrative salaries were up by 5.4% from the previous year. This provides additional support for the case that I made here that administrative bloat is one of the primary drivers of rapidly increasing college costs.

As for the other components comprising the index:

The cost of fringe benefits increased by 3.6%, faculty salaries increased by 3.4%, salaries for clerical and service employees were up 2.7 and 2.8 percent, respectively, and costs for misc services was up 2.7% from the previous year. The table below shows the percent increase year over year in FY 09 and FY 08 by index component.

1 comment:

Lynn said...

Your observations on runaway college costs remind me of the reaction that I got after I wrote a post about price hikes by private colleges. This summer the National Association of Independent Colleges and Universities released a press release congratulating its members for ONLY increasing tuition by 4.3%.

After I commented that the price hike hardly seemed worth celebrating, I got an email from an NAICU administrator that essentially chewed me out. I was stunned.

Here is the link to my post:

Lynn O'Shaughnessy
Author of The College Solution