Wednesday, October 07, 2009

The Higher Education Cost Index

By Richard Vedder

There are several things in life I would hate to endure --a hemorrhoid operation, a diet exclusively of spinach, and a week alone on a desert island with Nancy Pelosi would be three examples. Another is having to read and analyze the Higher Education Cost Index of the Commonfund.

The HECI is an abomination. A true price or cost index measures the change in currency units of the price or cost of a given amount of output of constant quality. Since outcomes and outputs are not truly measured in higher education, and there are multiple services produced (teaching, research, basketball entertainment, housing services, etc.) any attempt to calculate a cost index is an exercise of dubious value. Worse, the HECI is used by college administrators to perpetuate inefficiencies and rent-seeking behavior. Schools increase their administrative staff and pay by 10 percent, and this increases the HECI --so the schools claim that "adjusted for inflation", state appropriations are falling. Spending more creates the illusion that universities are receiving less. State appropriations are actually not falling, but appear to be doing so because of the rent-seeking avarice of universities that use the HECI more often than not.

Having said that again, for the umpteenth time, let me admit that the HECI may be a decent measure of the resources expended per student at a university, and that is a better measure than tuition charges of measuring higher education costs. With that in mind, I have taken the new 2009 data and done some calculations.

In 2009, the Higher Education Cost Index rose "only" 2.3 percent, the lowest increase in the history of the index (going back to the early 1960s). Yet college costs rose much more than inflation --as they have every year in this decade. From 1999 to 2009, the Consumer Price Index rose 30.5 percent --but the HECI rose much more --47.7 percent. The real cost of college per students is steadily rising relative to other goods and services which we produce and consume.

Why? Because we keep adding resources, take on new non-academic missions, and show little real concern about productivity. Technology does not lower costs --it raises them. Staffs are increasing per unit of output, not falling as in the rest of the economy. The rhetoric of colleges in claiming high levels of efficiency is just that --rhetoric, and the HECI, for all its many limitations, supports that conclusion.

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