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Stop Misusing Higher Education-specific Price Indices

Stop Misusing Higher Education-Specific Price Indices. Center for College Affordability and Productivity, Washington, 2011. Pages: 18.

In the latest policy paper from the Center for College Affordability and Productivity, an independent, non-profit higher education research centre based in the US, scrutiny is placed on the ubiquitous use of two higher education prices indices—the Higher Education Price Index (HEPI) and the Higher Education Cost Adjustment (HECA). The authors focus on two major flaws of the HEPI and HECA indices: Their widespread misuse and sources of statistical bias (i.e. productivity bias, quality bias, substitution bias and, in the case of the HEPI, a self-referential bias).

The authors state that HEPI is inappropriate to use when adjusting tuition for inflation because it is only designed to measure inflation of higher education inputs (i.e. faculty, administrative, clerical and service employee salaries, miscellaneous services, supplies and utilities). Similarly, HECA uses two separate price indices that measure inputs: The Employment Cost Index, which measures changes in labour costs, and the GDP Implicit Price Deflator, which measures changes in the prices of goods and services purchased by schools. Thus, to adjust tuition for inflation, one must use another index, such as the Consumer Price Index (CPI), to make a valid and accurate longitudinal comparison of tuition costs with other goods and services in another economic sector. In addition, the authors highlight that the two indices function with a fundamental quality bias. Because HEPI and HECA are input-based indices, they do not directly measure higher education outputs, which are difficult to quantify. Instead, these indices function on the assumption that the output (i.e. educational quality) is a constant, and thus the indices understate and overstate the genuine cost of educational provision when the quality of education declines and improves, respectively.

The report does note that the danger lies not in the existence of these educational indices, as they are useful in forecasting internal university budgets, but in their reference in the public sphere, where the issues of higher education costs and quality reach the widest audience.

Center for College Affordability and Productivity