Inflation for U.S. higher education institutions rises 2.7% in fiscal 2021; rate is up from last year’s 1.9% but level with 5-year average
WILTON, CT, December 15, 2021 – Data from the annual Commonfund Higher Education Price Index® (HEPI) show that inflation for U.S. colleges and universities rose 2.7 percent in fiscal year 2021, an increase compared with last year’s 1.9 percent but essentially level with the five-year average of 2.6 percent. (Fiscal year 2021 covers the period from July 1, 2020, to June 30, 2021, and coincides with the budget year of most institutions of higher education.)
Although a sharp year-over-year increase, the FY2021 HEPI figure trailed two 3.0 percent increases in recent years (FY2017 and FY2019) and was just slightly ahead of FY2018’s 2.6 percent rise. The previous fiscal year’s 1.9 percent increase was the lowest since fiscal 2016’s 1.5 percent figure.
Year over year, costs in FY2021 rose in all of the eight components tracked by HEPI, although the rate of increase slowed in three categories—faculty salaries, clerical costs and miscellaneous services. Faculty salaries, the most heavily weighted component of the index at 35 percent, rose 1.0 percent in FY2021 compared with 2.7 percent in FY2020. Clerical costs, the second-heaviest weighting at 18 percent, rose 2.8 percent, a lower rate than 3.2 percent in FY2020. Miscellaneous services, accounting for a 2 percent weighting, rose 2.0 percent, down from 2.8 percent in fiscal 2020.
The sharpest increase in costs in FY2021 occurred in the utilities category, which saw a 15.0 percent increase versus a 15.7 percent decline in FY2020. A similar mirror image reversal occurred in the supplies and materials category, where costs increased 3.5 percent this fiscal year compared with a 3.5 percent decline in the previous fiscal period.
Rounding out year-over-year changes are the following:
- Administrative salaries—up 1.6 percent in FY2021 versus a 1.5 percent rise in FY2020
- Service employee costs—4.3 percent higher compared with 4.0 percent a year ago
- Fringe benefits—up 4.1 percent versus 2.9 percent last fiscal year
Figure 1 tracks annual changes in HEPI over the last five fiscal years.
FIGURE 1*: THE HIGHER EDUCATION PRICE INDEX, FISCAL YEARS 2017 - 2021
* NOTE: Figure 1 above appears as Figure 2 in the full HEPI report.
HEPI is an inflation index designed specifically for use by institutions of higher education. Compiled from data reported by government agencies and industry sources, HEPI 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. A more accurate indicator of cost changes for colleges and universities than the Consumer Price Index (CPI), HEPI is used primarily to project future budget increases required to preserve purchasing power. With compilations dating back to 1961, HEPI offers 60 continuous years of higher education inflation data. It is an essential tool enabling schools to determine increases in funding necessary to maintain both real purchasing power and investment. In 2005, Commonfund Institute assumed responsibility for the index and the proprietary model used to calculate HEPI’s values from Research
Associates of Washington, D.C.
Comparing HEPI and the CPI, while the former showed costs rising 2.7 percent in FY2021 costs rose in the latter by 2.3 percent. By historical standards, this represented a very narrow spread, as did last year’s HEPI of 1.9 percent and the CPI’s 1.6 percent. For instance, the difference in FY2017 was 1.2 percentage points (3.0 percent versus 1.8 percent) and for FY2016 the gap was more than double (1.5 percent versus 0.7 percent). Two of the narrowest spreads were 0.1 percent (in fiscal years 2002 and 2010). With the exception of the high-inflation period of the mid- and late1 970s, HEPI almost always exceeds CPI on an annual basis.
HEPI for FY2021 versus a 5-year average
Figure 2 compares reported rates of change for FY2021 against their historical five-year averages. The principal observations follow:
Of the eight cost factors, four were above their five-year average in FY2021 and four were below.
Of the four most heavily weighted HEPI components, cost increases in FY2021 were below their five-year average for three and higher for one. Costs were lower for faculty salaries (1.0 percent versus 2.2 percent), administrative salaries (1.6 percent versus 2.1 percent) and clerical costs (2.8 percent versus 3.0 percent). They were higher for fringe benefits (4.1 percent versus 3.9 percent).
For FY2021, the greatest deviation from the five-year average was in the utilities component, which rose 15.0 percent compared with its five-year average of 3.3 percent. This category also showed the greatest divergence in last year’s study.
The other significant deviation was found in supplies and materials, which rose by 3.5 percent in FY2021 compared with a five-year average of 1.8 percent.
Of the remaining two components, service employee costs rose 4.3 percent in FY2021 versus a five-year average of 3.9 percent while miscellaneous services showed the least change, rising 2.0 percent in FY2021 versus a five-year average of 2.2 percent.
On a historical basis, utilities have been the most volatile component in the index. Since FY2015, this component declined by double digits in three years and increased by less than 2.0 percent in two others. This year’s 15.0 percent increase is the highest since a 14.5 percent rise in FY2017. Underscoring the volatile nature of this component, over the eight-year period from FY2002 to FY2009 costs rose or fell at double-digit rates each year.
This year’s 1.0 percent increase in faculty salaries was the lowest since FY2002, while the 1.6 percent increase in administrative salaries has only showed smaller increases twice in the period since FY2002.
FIGURE 2*: ANNUAL PERCENTAGE CHANGES IN THE 8 HEPI COST FACTORS VS. 5-YEAR AVERAGE
* NOTE: Figure 2 above appears as Figure 4 in the full HEPI report.
Faculty Salaries Show Modest Increase
Faculty salaries, the heaviest weighted component of overall HEPI, rose 1.0 percent nationwide in FY2021, the smallest increase in more than a decade.
Regionally, increases in faculty salaries ranged from a high of 1.5 percent in the Middle Atlantic region to a low of -2.5 percent in the Mountain region. Faculty salaries rose by 1.4 percent in the South Atlantic region and by 1.3 percent in the New England, West South Central and Pacific regions.
When data are viewed by type of institution, faculty salaries rose at a higher rate among public institutions than they did among their private counterparts—1.0 percent among the former versus unchanged (0.0 percent) among the latter.
Looking more closely at public institutions, faculty salaries at doctorate-granting institutions were unchanged year over year while rising 0.2 percent at master’s degree-granting institutions. Among two-year colleges, faculty salaries declined 0.8 percent. Turning to private institutions, doctorate-granting institutions saw a 0.3 percent decrease in faculty salaries. Private master’s degree-granting institutions and baccalaureate institutions each saw a 1.4 percent decrease. (Data for public two-year colleges and private baccalaureate institutions are not directly comparable for a number of reasons, notably the difference in the period of matriculation.)