BILLS DIGEST NO. 17, 2018–19              22 August 2018

Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 [and] Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018

Dr Hazel Ferguson
Social Policy Section

Date introduced:  28 March 2018

House:  House of Representatives

Portfolio:  Education and Training

Commencement: Most of the amendments commence on 1 July 2019. Contingent amendments are dependent on the commencement of the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018.

Links: The links to the Bills, their Explanatory Memoranda, and the second reading speech, can be found on the Bill homepages for the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 [and] Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at August 2018.

Purpose of the Bills

The purpose of the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 (the VSL Separation Bill) is to amend the VET Student Loans Act 2016 (the VSL Act) and the Higher Education Support Act 2003 (HESA) to establish VET Student Loans (VSL) as a separate program under the VSL Act.[1]

The purpose of the Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018 (the Overseas Debtors Bill) is to amend the Student Loans (Overseas Debtors Repayment Levy) Act 2015 to ensure arrangements for Higher Education Loan Program (HELP) debtors living overseas, which currently apply to VSL debts under HESA, continue to apply to VSL debtors if the proposed separation of VSL goes forward.[2]

The VSL Separation Bill also proposes consequential amendments to a range of other Commonwealth legislation, as discussed in the Key issues and provisions section of the Digest.

The VSL Separation Bill also contains an additional proposal to amend the VSL Act to allow the courses and loan caps determination, which specifies which courses are eligible for VSL (currently the VET Student Loans (Courses and Loan Caps) Determination 2016), to refer to courses listed on the National Register (the Register).

Background

The foundations of income contingent loans for vocational education and training—VET FEE-HELP

Income contingent loans for VET courses were first introduced as part of the HELP program as VET FEE-HELP in 2007 for study in 2008. The initial aim of the VET FEE-HELP sub-scheme was to provide support for courses which were pathways to higher education, but loans were extended to all diploma-and-above VET courses from 2012.[3] Although a loan fee was applied to VET FEE-HELP borrowers whose courses were not subsidised under state or territory government schemes, and the FEE-HELP lifetime borrowing limit applied, these measures did not control rapid growth in borrowing under the program or unscrupulous provider behaviour.[4]

According to the Department of Education and Training (DET), between 2009 and 2015:

The numbers of students accessing VET FEE-HELP jumped by 5,000 per cent, from 5,262 to 272,000.

Average course costs more than tripled, from around $4,000 to $14,000.

The value of loans landing as debts to students, and as Commonwealth borrowings, blew out from $26 million to $2.9 billion.[5]

From 2015 a number of changes were legislated to improve the monitoring and enforcement capabilities of DET and the national VET regulator, the Australian Skills Quality Authority (ASQA).[6] Changes included banning inducements, limiting allowable marketing and recruitment practices, clarifying student rights and obligations, and introducing stricter provider eligibility and charging requirements and a civil penalty regime.[7]

The establishment and administration of VET Student Loans

Despite some arguments that the problems with VET FEE-HELP arose from insufficient enforcement rather than poor program design, the reforms to income contingent loans for VET culminated in the replacement of VET FEE-HELP with VSL from 1 January 2017.[8] While retaining the VET FEE-HELP loan fee arrangements and borrowing limit, the VSL Act and VET Student Loans Rules 2016 (the VSL Rules) established limited terms of eligibility for courses, providers and students. These limitations aimed to:

… limit eligibility to courses that have high national priority, meet industry needs, contribute to addressing skills shortages and align with strong employment outcomes. This ensures the Government’s investment in VET is better targeted, and large loan amounts are no longer paid for courses that have limited public good or opportunities for employment; for example naturopathy, energy healing, and veterinary acupuncture.[9]

Under section 16 of the VSL Act, the VET Student Loans (Courses and Loan Caps) Determination 2016 sets out eligible courses and course borrowing limits, which are indexed each year from 2018. The 2018 course borrowing limits are $5,075, $10,150, and $15,225, with a separate $76,125 limit for aviation courses.[10]

Courses are listed in the Determination if they are current (in other words, not superseded) and; are subsidised by at least two states or territories, or if they are a science, technology, engineering or mathematics (STEM) course (as defined by the Australian Bureau of Statistics (ABS) and the Office of the Chief Scientist in recent publications). Following consultations, the Government also added courses to the Determination that provide qualifications required under state or territory occupational licencing laws.[11]

Limits on how much can be borrowed for each course aim to place downward pressure on how much providers charge, although this can also mean students need to find a way to meet the cost of any charges above the limit.[12] At the same time, the total amount an eligible student is able to borrow is limited by the FEE-HELP lifetime borrowing limit under paragraph 8(b) of the VSL Act, the limit being $127,992 for medicine, dentistry and veterinary science students and $102,392 for other students in 2018.[13]

Limits also apply to course providers as set out in Part 4, Division 1 of the VSL Act and in the VSL Rules. Prospective providers must apply to the Secretary of the relevant department (currently DET) for approval to offer VSL.[14]

The basis of the commitment to separate VET Student Loans

The Government has committed to continued monitoring and evaluation of the performance of VSL, with early signs that changes have led to improved outcomes.[15] The initial review of the program in February 2017 found:

There was no compelling evidence to warrant significant change to the loan cap amounts at this early stage of the program. The Government will continue to monitor the operation of the program and explore the possibility for some minor adjustments once more data becomes available.[16]

The Australian National Audit Office (ANAO) is currently undertaking a performance audit of the design and implementation of VSL, with the report due to table in October 2018.[17]

However, such efforts are arguably hampered by the way VSL debts are recorded and reported. While a range of administrative and statistical data is collected and published for the program, covering student demographics, course enrolments, course completions, and VSL and tuition fees, the amount of outstanding debt is bundled into overall HELP debt.[18] This means statements to debtors, information in the budget papers about the total amount of outstanding debt, as well as ATO statistics about the size of outstanding debts and the time people take to repay, are only available for the HELP program overall, not by sub-scheme.[19]

Therefore, the Mid-year Economic and Fiscal Outlook 2017–18 (MYEFO) included a commitment to separate the administration and reporting of Vocational Education and Training (VET) Student Loans from the rest of HELP, stating:

… from 1 July 2019, students will be better informed, with any VSL repayment requirements displayed separately on correspondence from the Australian Taxation Office. This measure will also enhance the Government's ability to analyse information on the value of student loans and repayments.[20]

Beyond the specific challenges of income contingent loans for VET, recent HELP legislation more broadly has been characterised by a concern with the sustainability of student loans and challenges around the different levels of debt not expected to be repaid (DNER) between VET and higher education borrowers.[21]

Committee consideration

Senate Standing Committee for the Scrutiny of Bills

As discussed further in Key issues and provisions, below, Division 3 of proposed Part 3A of the VSL Act (at item 20 of Schedule 1 to the VSL Separation Bill) will duplicate the arrangements in place for HELP debt liability for a person who is a foreign resident during an income year, so that these obligations will also apply to people with VETSL debts. Within Division 3 of proposed Part 3A, proposed section 23ED requires a person with a VETSL debt to notify the Commissioner of Taxation if they will be overseas for at least 183 days and advise their income (including foreign-sourced income). Proposed section 23FE provides that a failure to comply with section 23ED will be dealt with under Part III of the Taxation Administration Act 1953 (TAA 1953), as if section 23ED were a taxation law. Part III of the TAA 1953 deals with prosecutions and offences and provides, at section 8C that a failure to comply with a taxation law by, as currently relevant, failing to provide documents or information to the Commissioner as required, is an offence of absolute liability. This means that the prosecution is not required to prove any fault elements and the defence of mistake of fact is not available.[22] However, subsection 8C(1B) of the TAA 1953 provides that an offence is not committed to the extent that the person is not capable of complying with the information provision requirement. Under section 8E of the TAA 1953, a repeat offender could receive a sentence of imprisonment of up to 12 months for an offence against section 8C.

The Senate Standing Committee for the Scrutiny of Bills requested the Assistant Minister’s detailed justification for appropriateness of applying absolute liability to a breach of proposed section 23ED of the VSL Act and questioned whether it would be more appropriate to apply strict liability, rather than absolute liability, and provide that the offence is subject only to a pecuniary, rather than custodial, penalty.[23] Although the proposed section is consistent with the provisions already in HESA, the Committee has stated that this is not sufficient justification.[24] The Assistant Minister responded to the Committee’s concerns on 29 May 2018, advising that it was considered appropriate to apply absolute liability to proposed section 23ED as requiring fault to be proved would ‘undermine the deterrence factor’, which supports ‘self-regulation and integrity in the tax system’.[25] The Assistant Minister advised that it would not be appropriate to apply strict liability to proposed section 23ED as ‘there cannot be a mistaken belief about the facts relating to the physical elements of the offence’.[26] Dealing with breaches of proposed section 23ED under Part III of the TAA 1953 ensures that ‘the Australian Taxation Office can administer the provisions in line with broader provisions for administering HELP and taxation arrangements’.[27] The Assistant Minister undertook to table an addendum to the Explanatory Memorandum to explain the issues.[28]

The Committee thanked the Assistant Minister for his response and welcomed his undertaking to provide an addendum to the Explanatory Memorandum. The Committee drew its scrutiny concerns to the attention of senators.[29]

The Committee had no comment on the Overseas Debtors Bill.[30]

Senate Education and Employment Legislation Committee

The Bills were referred to the Senate               Education and Employment Legislation Committee for inquiry and report. The Committee received seven submissions and reported on 15 June 2018, recommending the Senate pass the Bills.[31] Details are available at the inquiry homepage and summarised below.

Policy position of non-government parties/independents

Both Labor and the Australian Greens state in the Committee report that they support the Bills’ aim to increase the transparency of student loans.[32]

However, Labor Senators raise concerns about insufficient funding of the VET sector and the history of unscrupulous providers profiting under VET FEE-HELP. The Labor recommendation states:

Labor Senators call on the government to adopt Labor’s policy and undertake a comprehensive and systematic review of the student loan system as part of a root and branch inquiry into the post-secondary education system. Only then can the underlying problems in the vocational education and training system, and the associated funding inequities, be brought to light and resolved.[33]

The Australian Greens do not make a separate recommendation, but note concerns about privatisation in the VET sector, as well as the repayment order proposed in the VSL Separation Bill, stating:

There appears to be no justification for why VET loans should be sequenced for repayment only after other HELP debts have been repaid. As noted in the submission by the Pro Vice-Chancellor of VET Operations and Growth at the CQUniversity, Mr Peter Helibuth, it would be simpler to have students repay their debts in the order they were incurred.[34]

This suggestion and the referenced submission from CQUniversity is discussed further below.

Position of major interest groups

The only submission to the Inquiry to express unreserved support for the Bills was from Australian Industry Group (Ai Group). Ai Group’s submission states:

Ai Group agrees with the intent of the two bills to separate reporting and monitoring of VET loans from other student loans. This will provide better data about general take-up, and the rate at which repayments are being made. The data can also be useful in providing information about which courses are repaid more quickly than others, and which courses and which disciplines are slow to provide the outcomes that allow individuals’ wages to rise to repayment thresholds. All of these aspects available through the disaggregated data will be important in the formulation of new policy, particularly with regard to eligible courses in the future.[35]

TAFE Directors Australia (TDA) raises the issue of equality between TAFEs and universities and their respective students, and proposes amending the VSL Separation Bill to:

•       remove the 20 per cent loan fee that currently applies to VET Student Loans borrowers who are not subsidised by their state or territory government, on the basis that no loan fee applies to HECS-HELP students at universities (although it should be noted that a 25 per cent loan fee currently also applies to students who borrow for undergraduate higher education courses through FEE-HELP, typically for study at non-university higher education providers)[36]

•       extend the tuition assurance exemption that currently applies to universities to TAFE providers, on the basis that they are subject to significant oversight by state and territory governments and are also large public providers—tuition assurance protects VET Student Loans students in the event that their provider is unable to deliver their course.[37]

These are not issues that are directly addressed in the current Bills.[38]

TDA also raises concerns about the repayment order proposed in the VSL Separation Bill, which would mean VETSL debts would be repaid only after any HELP debt is fully repaid. Although not proposing an amendment to address this, TDA suggests if the intent is to improve transparency of the student loan programs, one unintended consequence of the proposed repayment order would be to inflate the time to repay for VETSL as a consequence of debtors with both HELP and VETSL debt needing to repay HELP first.[39] TDA suggests this should be carefully noted in order to avoid damage to the reputation of VETSL in later years, if its outcomes are measured against HELP.

On the basis of its experience as a dual sector provider, with students moving between higher education and VET, as an alternative to the proposed repayment order CQUniversity recommends student loan debts be repaid in the order in which they are incurred.[40] Open Colleges, a distance and online provider, also raises concerns about the proposed repayment order and recommends repayments should occur in the order in which the debt is incurred.[41] It is not clear if, or how readily, this could be achieved by DET and the ATO.

There are a range of complexities that could be considered in the ordering of student loan debt repayments, including average size of debts, the number of people with debts under multiple schemes, and the complexity of repayment arrangements. However, there is no clearly articulated policy logic for the current or proposed repayment order, and with repayment thresholds and rates for each scheme either identical or proposed to become identical in the near future, it is unclear what policy benefit one repayment order has over another.[42]

According to Mark Warburton, formerly of DET and now Honorary Fellow, Melbourne Graduate School of Education, University of Melbourne, this point goes to the much larger issue of the legislative and administrative complexity created by adding to the current suite of student loan schemes:

The creation and ordering of debt pots is likely to make it more difficult to understand what is going on because many people have debts in multiple pots. It would not be uncommon for a person to have a debt in the HELP pot, the VETSL pot and the pot for Student Start-up debt. In 2014, nearly 42,000 people who had a bachelor degree or higher qualification completed a VET qualification. There are also thousands of people who complete a VET qualification and subsequently enrol in a higher education course.[43]

Professor John Quiggin, Australian Laureate Fellow in Economics at the University of Queensland, supports the proposed separation of VETSL from HELP only ‘as a temporary measure, necessitated by past policy failures.’[44] Ultimately, he argues, ‘VET and Higher Education should be combined into a single national system, funded by the Commonwealth.’[45]

Financial implications

According to the Explanatory Memorandum to the VSL Separation Bill:

The measure to separate VET student loans debts from other forms of HELP debts will cost $2.1 million over four years from 2017-18 for the Department of Education and Training to support the required IT changes at the Australian Taxation Office and Department of Education and Training.[46]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.[47]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considers that the Bills do not raise human rights concerns.[48]

Key issues and provisions

VSL Separation Bill Schedule 1—Separation of VET Student Loan debts from HELP debts

As a replacement for VET FEE-HELP, VSL is currently a HELP sub-scheme with student debt accrued and managed under HESA alongside the other income contingent loan sub-schemes, which are available to students in the higher education sector.[49] This means VSL debt is HELP debt, which is made up of all debt incurred under all HELP sub-schemes. For example, a student who borrowed $20,000 through HECS-HELP for an undergraduate university degree and then $5,000 through VET Student Loans for an additional vocational qualification would have a $25,000 HELP debt (assuming no loan fee had been charged and no repayments had yet been made, and leaving aside the effect of indexation). Australian Taxation Office (ATO) reporting (both to the debtor and more broadly in statistical collections) is of this total HELP debt only. Likewise, the projected amount of HELP debt in the budget papers is not disaggregated to sub-scheme level.

The only exception to the consolidated reporting on HELP debts is the Australian Government Actuary (AGA) assessments of DNER, which, following the rapid increases in VET FEE-HELP borrowings, began to make a case that VET loans would have a higher level of DNER, not only because of inappropriately issued debts resulting from unscrupulous provider behaviour, but also because of the lower average incomes expected of VET course completers, meaning a greater proportion of debtors may not reach the minimum income threshold at which repayments would become compulsory.[50] At 30 June 2017, the overall AGA DNER estimate for HELP was 25 per cent, but only 18 per cent if VET loans are excluded.[51]

Schedule 1 of the VSL Separation Bill proposes to amend HESA and the VSL Act to create post-1 July 2019 VSL (referred to as VETSL in the proposed amendments) as a separate program under the VSL Act.

Amendments to HESA

Items 1 to 12 amend HESA to define VSL debts incurred as HELP debt before 1 July 2019 as ‘pre-1 July 2019 VSL debts’.

The meaning of pre-1 July 2019 VSL debt is inserted by item 7, which will repeal subsections 137–19(1), (2) and (3), which currently specify how VSL debt is incurred as HELP debt, and substitute subsection 137–19(1) which states: ‘A debt incurred under this section as in force any time before 1 July 2019 is a pre-1 July 2019 VSL debt.’

Item 4 adds a note at the end of section 134–1, which summarises Part 4–1 (which outlines how HELP debts are incurred) clarifying ‘if the Secretary uses an amount of a VET student loan approved under the VET Student Loans Act 2016 to pay tuition fees for a person on or after 1 July 2019, the person incurs a debt under that Act.’

This means ‘pre-1 July 2019 VSL debts’, like VET FEE-HELP debts, would remain under HESA, with reporting and repayment arrangements as set out under that Act.

Amendments to the VSL Act

Items 13 to 23 amend the VSL Act to remove references to VSL debt as HELP debt and add arrangements for loans made under the VSL Act on or after 1 July 2019, referred to as ‘VETSL debt’ to be subject to repayment arrangements consistent with current arrangements for HELP debts under HESA.

Item 13 omits the reference to HELP debt under HESA from the outline of the VSL Act at section 5, and substitutes the following description of VETSL debt: ‘These debts are generally repayable through the tax system once the person’s income exceeds the minimum repayment income under the Higher Education Support Act 2003 and the person has finished repaying any debt under that Act.’ This means VETSL repayments would commence only after a person has fully repaid any outstanding HELP debt.

Item 15 proposes to add a number of definitions to section 6 of the VSL Act. Most duplicate relevant material from Schedule 1 of HESA, such as ‘Medicare levy means Medicare levy imposed by the Medicare Levy Act 1986’ or specify a term has the same meaning as in HESA (this is the case for assessed worldwide income, for example, which will have the meaning given by section 154-17 of HESA). However, six new definitions are proposed, relating to the accumulation, compulsory repayment amounts and repayable VETSL debt. The new definitions refer to proposed sections 23EA, 23EC and 23EE, and subsections 23BA(1), 23CB(1), 23CC(1) and 23EB(1), as discussed below at item 20.

Item 16 repeals the definition of VET Student Loan debt at section 6, which is no longer needed if the abovementioned definitions of ‘pre-1 July 2019 VSL debt’ and ‘VETSL debt’ are adopted.

Item 17 proposes to insert a new definition of voluntary repayment specific to VETSL debt:

… voluntary repayment means a payment made to the Commissioner in discharge of an accumulated VETSL debt or a VETSL debt. It does not include a payment made in discharge of a compulsory VETSL repayment amount.

This proposed definition is consistent with the definition of voluntary repayment applicable to HELP debt under HESA.[52]

Item 18 repeals and replaces the note at subsection 19(4), which currently explains ‘If the Secretary uses a loan amount to pay tuition fees for a student, the student incurs a VET student loan debt’ under HESA. The two proposed notes insert an equivalent reference to VETSL debt under the VSL Act, and explain debt incurred prior to 1 July 2019 will remain under HESA:

Note 1:              If the Secretary uses a loan amount to pay tuition fees for a student, the student incurs a VETSL debt under section 23BA.

Note 2:              If the Secretary used a loan amount to pay tuition fees for a student before 1 July 2019, the student will have incurred a debt under section 137-19 of the Higher Education Support Act 2003 as then in force. Those debts are managed under that Act as HELP debts.

Item 19 updates subsection 22(1) (note 2) to clarify that VET student loan debt that is remitted under section 22 of the VSL Act is ‘taken to be remitted to the extent to which the debt relates to the loan amount concerned’, which is provided for under proposed section 23BA for VETSL debt and under the amended section 137-19 of HESA for ‘pre-1 July 2019 VSL debt’. This is an update to clarify how requirements for course providers to repay debt are to be dealt with for the two proposed categories of VSL debt—in either case the FEE-HELP balance is re-credited the amount of the relevant loan that the provider is required to repay.

Item 20 inserts proposed Part 3A into the VSL Act, setting out arrangements for VETSL debts:

•       Proposed section 23BA sets out how a VETSL debt is incurred, duplicating arrangements that currently apply for VSL debts under section 137–19 of HESA.

•       Proposed section 23BB sets out that the VETSL debt is discharged by death, duplicating arrangements that currently apply for VSL debts under section 137–20 of HESA.

•       Proposed section 23BC provides that the Secretary must give the Commissioner (of Taxation) a notice specifying the amount of VETSL debt incurred—this differs from current arrangements under HESA, which under section 154–55 only requires higher education providers and Open University Australia to provide the Commissioner with information relating to students who have applied for HELP loans for higher education.

•       Proposed sections 23CA, 23CB and 23CC set out how VETSL debts are worked out, in line with arrangements under sections 140–5 and 140–25 of HESA for working out former accumulated and accumulated HELP debt.

•       Proposed section 23CD duplicates technical arrangements from section 140–30 HESA in relation to rounding of debts (they are ‘rounded down’ to the nearest whole dollar, including to zero dollars if the amount is less than one dollar).

•       Proposed section 23CE duplicates technical arrangements from section 140–35 of HESA in relation to replacement of the previous year’s accumulated VETSL debt with the amount worked out for the current year.

•       Proposed section 23CF duplicates arrangements under section 140–40 of HESA for the discharge of debts on death.

•       Proposed sections 23DA, 23DB and 23DC duplicate sections 151–1, 151–10 and 151–15 of HESA, setting out arrangements for voluntary repayments of debt.

•       Proposed sections 23EA and 23EB set out compulsory VETSL repayment arrangements. While the technical detail of these in relation to liability to repay and repayment income duplicate arrangements for HELP debt under sections 154–1, 154–5 154–10 and 154–15 of HESA, proposed subsection 23EA(1) specifies the VETSL repayment liability will be reduced by the relevant income contingent loans liability, which is the ‘sum of any amounts the person is liable to pay under section 154–1 or 154–16 of the Higher Education Support Act 2003 in respect of the income year.’ This means someone with both an accumulated VETSL debt and an accumulated HELP debt, including if they resided overseas during the income year, will commence VETSL repayments only once the HELP debt is discharged. This gives rise to the need for contingent amendments to handle changes to repayment order proposed in the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 (the Student Loan Sustainability Bill). These are discussed below.

•       Proposed sections 23EC and 23ED duplicate the arrangements in place for HELP debt liability for a person who is a foreign resident during an income year under sections 154–16, 154–17 and 154–18 of HESA, for VETSL debtors under the same circumstances. Currently, HELP repayments for overseas debtors are imposed as a levy under the Student Loans (Overseas Debtors Repayment Levy) Act 2015 (the Overseas Debtors Repayment Levy Act). The Overseas Debtors Bill amends this Act in line with the proposed section 23EC, as discussed below.

•       Proposed sections 23EE to 23EH duplicate HESA sections 154–35, 154–40, 154–45 and 154–50 in relation to arrangements for the Commissioner of Taxation to make assessments of HELP debt, for VETSL debt. This makes separate assessments of HELP and VETSL debts possible, with debtors advised of each figure.

•       Proposed sections 23FA to 23FF duplicate the arrangements in HESA in sections 154–60, 154–65, 154–70, 154–80, 154–90, and 238–8 in relation to the application of tax legislation, empowering the Commissioner of Taxation to recover VETSL debts through the taxation system as is currently the case for HELP.

Technical, consequential and contingent amendments

Part 2 of Schedule 1 to the Bill makes a number of technical, consequential and contingent amendments to the following Commonwealth legislation:

•       A New Tax System (Family Assistance) (Administration) Act 1999

•       Bankruptcy Act 1966

•       Income Tax Assessment Act 1936

•       Income Tax Assessment Act 1997

•       Social Security Act 1991

•       Student Assistance Act 1973

•       Taxation Administration Act 1953

•       Taxation (Interest on Overpayments and Early Payments) Act 1983

•       Trade Support Loans Act 2014

•       VSL Act.

The contingent amendments are required to take into account proposals in the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018. The details of all the student loan programs and the proposals in the Student Loan Sustainability Bill are set out in the Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 digest.

In summary, currently, HELP debt is repaid before Student Start-up Loan (SSL) and Trade Support Loan (TSL) debts, but concurrently with Student Financial Supplement Scheme (SFSS) debts, which have their own repayment thresholds and rates as set out in the Social Security Act 1991.[53] In relation to this:

•       Schedule 1 of the Student Loan Sustainability Bill proposes to amend the Social Security Act to harmonise the SFSS repayment thresholds and rates with those already in place for other student loan programs, including HELP, under HESA

•       Schedule 2 of the Student Loan Sustainability Bill proposes to amend the Social Security Act, Student Assistance Act 1973 and Trade Support Loans Act 2014 to add SFSS debts to the repayment order arrangements already in place for other student loan programs, ensuring SFSS debts are no longer repaid concurrently with other student loans.[54]

Since the VSL Separation Bill proposes to create a fifth category of student loan debt—VETSL debt—it proposes to address the complexities it introduces to the changes to repayment order proposed by the Student Loan Sustainability Bill:

•       If Schedule 1 of the Higher Education Support Legislation Amendment (Student Loan Sustainability) Act 2018 (Student Loan Sustainability Act) commences by 1 July 2019, the VSL Separation Bill proposes to make no changes to the repayment thresholds and rates for the SFSS, which will be amended by the Student Loan Sustainability Bill to begin using the HELP repayment thresholds and rates from 1 July 2019 for the 2019–20 income year.[55]

•       If Schedule 2 of the Student Loan Sustainability Act commences on 1 July 2019, as provided in clause 2 of the Student Loan Sustainability Bill as passed, the VSL Separation Bill proposes to add reference to VETSL debt after HELP debt in the definition of ‘relevant income-contingent loans liability’ in each Act:

–      item 39 inserts the reference into subsection 1061ZVHA(1) of the Social Security Act

–      item 45 inserts the reference into subsection 10F(1) of the Student Assistance Act and

–      item 71 inserts the reference into subsection 46(1) of the Trade Support Loans Act.

This would mean VETSL debt is included in the repayment order for student loan debts, making the order following amendments resulting from both Bills: HELP, VETSL, SFSS, SSL, ABSTUDY SSL and TSL.

•       If Schedule 2 of the Student Loan Sustainability Act does not commence on 1 July 2019, the VSL Separation Bill proposes to add VETSL debt to definitions of ‘relevant income contingent loans liability’ after HELP in each Act. Where the relevant definition is currently ‘HELP liability’, the VSL Separation Bill proposes to replace this with a definition of ‘relevant income contingent loans liability’ which includes HELP then VETSL. The result of these proposed amendments would be to create the following repayment order: HELP, VETSL, SSL, ABSTUDY SSL, and TSL.

This means if Schedules 1 and 2 of the Student Loan Sustainability Act do not commence as set out in the Student Loan Sustainability Bill, SFSS debts will remain separate from the other student loan programs as they are currently, with their own repayment thresholds and rates, and the requirement that they be repaid concurrently with other income contingent loans will continue. However, if this occurs and Schedule 1 of the VSL Separation Bill commences, VETSL will be included in the repayment order after HELP but before other income contingent loans.

Overseas Debtors Bill—application of the overseas debtors repayment levy to VETSL debt

From 1 January 2016, under HESA and the Overseas Debtors Repayment Levy Act, a person with a HELP debt who is a foreign resident during an income year is required to:

•       report total worldwide income (which includes Australian-sourced and foreign-sourced income) to the Commissioner of Taxation (through the ATO)

•       pay the overseas levy, which is equal to the difference between the total repayment obligation assessed on the person’s worldwide income, and any compulsory HELP repayments already paid or assessed on Australian-sourced income.[56]

The effect of this is that someone with a HELP debt who is a foreign resident during an income year has the same HELP liability, and is required to repay the same amount through the Australian tax system, as if they had not resided overseas.

Amendments to the VSL Act to apply these same responsibilities to VETSL debtors are included in proposed sections 23EC to 23EH at item 20 of the VSL Separation Bill, as discussed above.

In the single Schedule of the Overseas Debtors Bill, items 1 to 3 propose technical amendments to the Overseas Debtors Repayment Levy Act to insert references to debts under section 23EC of the VSL Act—that is, a VETSL loan liability held by a person who is a foreign resident during an income year. The effect of this is to allow VETSL repayments to be charged as a levy under the Overseas Debtors Repayment Levy Act in the same way as HELP repayments for overseas debtors are currently charged.

VSL Separation Bill Schedule 2—course and loan caps determination

The VSL Separation Bill also proposes to amend the VSL Act to allow the courses and loan caps determination, currently the VET Student Loans (Courses and Loan Caps) Determination 2016, to allow the determination to apply, adopt or incorporate an instrument, with or without modification, as in force or existing from time to time. The Explanatory Memorandum provides that the intention is for the determination to nominate courses of study for which VET student loans may be approved (which may be included in the determination under paragraph 16(1)(a) of the VSL Act) by referring to the National Register of VET.[57]

The National Register is referred to in section 216 of the National Vocational Education and Training Regulator Act 2011. It is the official record of all nationally recognised VET qualifications for Australia. When a change is made to a qualification, such as being removed (deleted) or superseded, the Register is required to be updated. For example, the register shows the current Certificate IV in Retail Management (Release 2), part of the Retail Services Training Package, superseded the first release of this qualification from 30 March 2016—the update included increasing the core units required for completing the qualification by four, decreasing electives by three units, and updating entry requirements.[58] These kinds of updates occur regularly in the VET system, and a new course code is issued for each version of the qualification, meaning a new version of a course is distinct from its predecessor and under current arrangements must be added to the courses and loan caps determination by amendment.

As discussed above, when VSL was created, one of the measures introduced to improve the monitoring and enforcement capabilities of DET and the national VET regulator was the courses and loan caps determination under section 16 of the VSL Act, which allows the Minister to specify the courses eligible for VSL support, as well as the maximum amount of support available per course or the method of working out that amount. The Explanatory Memorandum for the VSL Separation Bill specifies that the determination is updated twice yearly, and, as discussed above:

The methodology for approved courses is that courses must be current, and be subsidised by two state or territory lists, or be science, technology, engineering or mathematics courses, or be required for a licensed occupation. [59]

Each state and territory government independently determines which courses are eligible to be subsidised in that jurisdiction, generally based on an assessment of skill needs—the subsidy not only reduces the cost to the student by the government bearing some of the cost of the qualification, but also exempts the student from the 20 per cent loan fee, as discussed above. Subsidy lists are normally updated by state and territory governments once per year. For example, New South Wales Government subsidised courses are funded under Smart and Skilled.[60] The 2018 NSW Skills List identifies the qualifications eligible for a government subsidy, and also sets out prices, including a lower price for first qualification and loadings paid to the provider to support Aboriginal or Torres Strait Islander students, students with a disability or receiving Australian Government welfare benefits, and their dependents, and students in a regional or remote location.[61]

Schedule 2 of the VSL Separation Bill contains just one item, which inserts proposed subsection 16(4) at the end of existing section 16 of the VSL Act, which deals with the courses and loan caps determination. It provides:

(4)              Despite subsection 14(2) of the Legislation Act 2003, a determination made under subsection (1) may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time.

Subsection 14(2) of the Legislation Act 2003 states:

(2)              Unless the contrary intention appears, the legislative instrument or notifiable instrument may not make provision in relation to a matter by applying, adopting or incorporating any matter contained in an instrument or other writing as in force or existing from time to time.

Therefore, although the proposed subsection 16(4) does not specifically refer to the Register, ‘[t]his lays the groundwork for the Determination to be amended, to refer to listed courses and new courses that replace those that become superseded or reaccredited, as specified on the Register.’[62]

Under these proposed arrangements, a replacement course on the Register would be automatically eligible for VETSL whether it satisfies the criteria for inclusion or not. While any unintended consequences of this are likely to be negligible in the short term, over the longer-term as skills needs change and (for example) states and territories update their subsidy lists, the intended alignment between VETSL and skills funding priorities may not be maintained.

Concluding comments

The changes proposed in these Bills are administrative in nature and do not make any immediate changes to eligibility or repayment conditions for income contingent loans in VET, with the key changes being:

•       individual reporting arrangements for VET Student Loans from 1 July 2019

•       the establishment of a repayment order to ensure VET Student Loans incurred from 1 July 2019 (‘VETSL’) are repaid separately after HELP but before other kinds of income contingent student loans

•       enabling the inclusion of courses in the course and loan caps determination by reference.

Importantly, the first two changes, if implemented, will for the first time provide a picture of total outstanding debt, time to repay, and average individual debt levels for VET debtors compared with higher education debtors. However, this division would also add to the complexity of interactions between student loan schemes.

The separation of VETSL raises broader questions about the future coherence of tertiary education financing. While some policy analysts in recent years have called for a more unified or coordinated approach to higher education and VET financing, the proposals in these Bills appear to be a step in the opposite direction: towards a more definitive division of the two.[63]

While separate administration and reporting of income contingent loans for VET may provide an opportunity to more carefully consider the relationship between VET and higher education financing, both in terms of the equity of student entitlements and the sustainability of the loans, the proposed changes may also pave the way for further legislative changes differentiating student loans for VET students from those for higher education students.

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[1].              The commitment to separate the administration and reporting of Vocational Education and Training (VET) Student Loans from the rest of the Higher Education Loan Program (HELP) was announced at the Mid-year Economic and Fiscal Outlook 2017–18 (MYEFO) which stated: ‘from 1 July 2019, students will be better informed, with any VSL repayment requirements displayed separately on correspondence from the Australian Taxation Office. This measure will also enhance the Government's ability to analyse information on the value of student loans and repayments.’ Australian Government, Mid-year Economic and Fiscal Outlook 2017–18, p. 147.

[2].              Information on current arrangements for overseas HELP debtors is available from Australian Tax Office (ATO), ‘HELP and TSL overseas obligations’, ATO website, last modified 12 February 2018.

[3].              C Kempner, Higher Education Support Amendment (Extending Fee-Help for VET Diploma and VET Advanced Diploma Courses) Bill 2007, Bills digest, 11, 2007–08, Parliamentary Library, Canberra, 2007; Department of Education and Training (DET), Review of the VET student loans course list and loan cap methodology, Discussion paper, DET, Canberra, 2017.

[4].              In 2018, the FEE-HELP borrowing limit, which also applies to VET Student Loans and formerly VET FEE-HELP, is $127,992 for medicine, dentistry and veterinary science students and $102,392 for other students, according to the Department of Education and Training (DET) ‘FEE-HELP’ webpage on the StudyAssist website. The VET FEE-HELP loan fee was 20 per cent for non-subsidised students, according to the DET Thinking about a VET qualification? VET FEE-HELP brochure, 2016, p. 4. Information about the rapid growth in VET FEE-HELP borrowing and unscrupulous provider behaviour is outlined in Australian National Audit Office (ANAO), Administration of the VET FEE-HELP scheme: Department of Education and Training: Australian Skills Quality Authority: Australian Competition and Consumer Commission, Audit report, 31, 2016–17, ANAO, Barton, ACT, 2017.

[5].              DET, Review of the VET student loans course list and loan cap methodology, op. cit., p. 6.

[6].              Discussed in J Griffiths, Higher Education Support Amendment (VET FEE-HELP Reform) Bill 2015, Bills digest, 60, 2015–16, Parliamentary Library, Canberra, 2015.

[7].              See J Griffiths, VET Student Loans Bill 2016 [and] VET Student Loans (Charges) Bill 2016 [and] VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016, Bills digest, 41, 2016–17, Parliamentary Library, Canberra, 2016.

[8].              M Warburton, The VET student loans scheme: is it a good model for a student loan scheme?, LH Martin Institute, 2017, p. 5; ANAO, Administration of the VET FEE-HELP scheme, op. cit., p. 40.

[9].              DET, Review of the VET student loans course list and loan cap methodology, op. cit., p. 6.

[10].              DET, VSL course caps indexed amounts, StudyAssist website, 13 December 2017.

[11].              DET, Review of the VET student loans course list and loan cap methodology, op. cit., p. 7.

[12].              Warburton, The VET Student Loans scheme: is it a good model for a student loan scheme?, op. cit., p. 8.

[13].              DET, ‘FEE-HELP’, StudyAssist website. Student eligibility is dealt with under Division 2 of Part 2 of the VSL Act in terms of student enrolment and loan application, citizenship and residency, and academic suitability.

[14].              DET, ‘How to become a VET Student Loans provider’, DET website, last modified 19 April 2018.

[15].              K Andrews (Assistant Minister for Vocational Education and Skills), Completion rates on the rise under VET Student Loans, media release, 13 February, 2018.

[16].              DET, ‘Review of the VET student loans approved course list and loan caps methodology’, DET website.

[17].              ANAO, ‘Design and implementation of the VET Student Loans program’, ANAO website.

[18].              DET, ‘VET Student Loans Statistics’, DET website.

[19].              On the bundling of HELP reporting, see for example Australian Taxation Office (ATO), ‘Taxation statistics: individuals’, ATO website, last modified 11 January 2018.

[20].              Australian Government, Mid-year Economic and Fiscal Outlook 2017–18, p. 147.

[21].              See H Ferguson, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018, Bills digest, 96, 2017–18, Parliamentary Library, Canberra, 2018.

[22].              Section 6.2 of the Criminal Code Act 1995.

[23].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 5, 2018, The Senate, 9 May 2018, p. 26. If strict liability was applied, a defence of mistake of fact would be available. See section 6.1 of the Criminal Code Act 1995.

[24].              Ibid., pp. 25–6.

[25].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 6, 2017, The Senate, Canberra, 20 June 2018, p. 91.

[26].              Ibid., p. 92.

[27].              Ibid.

[28].              Ibid. At the date of publication of this Digest, an addendum to the Explanatory Memorandum had not yet been provided.

[29].              Ibid., p. 94.

[30].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 5, 2018, op. cit., p. 55.

[31].              Senate Education and Employment Legislation Committee, Inquiry into the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, 15 June 2018, p. 10.

[32].              Ibid., pp. 11–13.

[33].              Ibid., p. 12.

[34].              Ibid., p. 13.

[35].              Australian Industry Group (Ai Group), Submission to Senate Education and Employment Legislation Committee, Inquiry into the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, [submission no. 3], May 2018, p. 2.

[36].              DET, ‘FEE-HELP’ webpage, StudyAssist website.

[37].              TAFE Directors Australia (TDA), Submission to Senate Education and Employment Legislation Committee, Inquiry into the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, [submission no. 1], May 2018, pp. 4–5.

[38].              See Ferguson, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018, op. cit., pp. 10–11 for a discussion of the current state of student loan fees and alternative proposals. It should be noted that interim tuition assurance arrangements for 2018 are currently in place, as DET develops more sustainable arrangements for implementation after 2018. DET, ‘Tuition assurance and provider closures’, DET website, last modified 20 June 2018. Legislation would not necessarily be required to implement future arrangements, and in January 2018 DET invited expressions of interest to become a tuition assurance operator from January 2019. DET, VET Student Loans and FEE-HELP: tuition assurance operator expression of interest—guideline, DET, Canberra, 2018.

[39].              TDA, Submission to Senate Education and Employment Legislation Committee, op. cit., pp. 4–5.

[40].              CQUniversity, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, [submission no. 4], May 2018.

[41].              Open Colleges, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, [submission no. 7], May 2018.

[42].              See Ferguson, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018, op. cit., for a discussion of the proposed arrangements for harmonising repayment arrangements between the existing student loan schemes.

[43].              M Warburton, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, [submission no. 6], May 2018, p. 3

[44].              J Quiggin, Submission to Senate Education and Employment Legislation Committee, Inquiry into the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, [submission no. 2], May 2018, p. 3

[45].              Ibid., p. 4.

[46].              Explanatory Memorandum, Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018, p. 5. This amount is restated in the Explanatory Memorandum to the Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018, p. 3.

[47].              The Statement of Compatibility with Human Rights can be found at pages 6–9 of the Explanatory Memorandum to the VSL Bill and pages 4–6 of the Explanatory Memorandum to the Overseas Debtors Bill.

[48].              Parliamentary Joint Committee on Human Rights, Report, 4, 2018, Australian Parliament, Canberra, 8 May 2018, pp. 96–7.

[49].              An introduction to the HELP loans is available from C Ey, Higher Education Loan Program (HELP) and other student loans: a quick guide, Research paper series, 2016–17, Parliamentary Library, Canberra 2017. More detail is available in C Ey, The Higher Education Loan Program (HELP) and related loans: a chronology, Research paper series, 2017–18, Parliamentary Library, Canberra 2018.

[50].              Australian Government Actuary (AGA), Australian Government actuary report to the Department of Education and Training—VET FEE-HELP extract, AGA, 18 August 2016.

[51].              DET, Annual report 2016–17, DET, Canberra, 2017, p. 45.

[52].              The term is defined in the Dictionary at Schedule 1 to HESA.

[53].              Ferguson, Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018, op. cit.

[54].              Ibid.

[55].              At the time of publishing this Digest, the Student Loan Sustainability Bill had passed both Houses of Parliament and was awaiting Royal Assent. Clause 2 of the Bill as passed provides that Schedule 1 will commence on 1 July 2019. See: Parliament of Australia, ‘Higher Education Support Legislation Amendment (Student Loan Sustainability) Bill 2018 homepage’, Australian Parliament website.

[56].              ATO, ‘Recovery of HELP and TSL repayments from overseas debtors’, ATO website, last modified 10 March 2016; ATO, ‘Calculating non-resident foreign income for HELP and TSL debtors’, ATO website, last modified 29 May 2018. These responsibilities also apply to people who were overseas residents during an income year who have Trade Support Loan debts—these loans assist apprentices with the everyday costs associated with their apprenticeship and are repaid under largely the same arrangements as HELP debts.

[57].              Explanatory Memorandum, Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018, p. 3.

[58].              DET, ‘Qualification details: SIR40316 - Certificate IV in Retail Management (Release 2)’, Training.gov.au website. Training packages are the basis for most Australian VET qualifications.

[59].              Explanatory Memorandum, Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018, p. 3.

[60].              New South Wales (NSW) Department of Industry Training Services NSW, ‘Smart and Skilled’, NSW Department of Industry website.

[61].              NSW Department of Industry Training Services NSW, ‘NSW Skills List’, NSW Department of Industry website, version 6.0 for 2018.

[62].              Explanatory Memorandum, Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018, p. 3.

[63].              Policy analysis consistently acknowledges the particular challenges and lessons learned from income contingent loans for VET, but points out there needs to be a more cohesive consideration of the relationship between VET and higher education financing, and more equitable treatment of students across the systems. Various proposals have been put forward but see for example A Norton and I Cherastidtham, Shared interest: a universal loan fee for HELP, Grattan Institute, December 2016; P Noonan and S Pilcher, Financing tertiary education in Australia – the reform imperative and rethinking student entitlements, Issues paper, Mitchell Institute for Health and Education Policy, Melbourne, February 2015; S Parker, A Dempster and M Warburton, Reimagining tertiary education: From binary system to ecosystem, KPMG, August 2018.