Chapter 2


Income-contingent loans

Vocational education and training in Australia is driven by two main objectives: optimising student employment outcomes and ensuring Australia's economic prosperity. By extending financial assistance to students who pursue higher level VET qualifications, income-contingent loans contribute towards both objectives.
According to the bill's second reading speech, the government therefore supports income-contingent loans and the opportunity they represent. Without such loans, students who cannot afford to pay full tuition fees to undertake higher level VET qualifications would miss out on valuable higher level education.1
The Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 and the Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018 (the bills) seek to further refine the government's student loan policy.
This chapter sets out the government's rationale for the proposed changes, and looks at several issues raised in submissions.

Background to the VET Student Loans program

The VET Student Loans (VSL) program commenced on 1 January 2017, replacing the troubled VET FEE-HELP scheme from this date.
The Department of Education and Training (the department) describes VET FEE-HELP as 'a demand driven measure with limited policy levers and administrative controls.'2 Although the VET FEE-HELP scheme was introduced to assist students, when course articulation requirements were removed in 2012 it experienced exponential growth, with student take-up rising from approximately 55 000 students in 2012 to over 272 000 by 2015. Loans increased over the same period from $323 million to $2.9 billion, and the average student loan grew from $9092 to $14 866, resulting in much higher debts for many students.3
Although policy reforms introduced in 2015 sought to address the most egregious issues with VET FEE-HELP, the unsustainable growth of the scheme was only arrested with its replacement by the VSL program last year. The key contrast between the two programs is that the latter provides capped, incomecontingent loans to eligible students and an approved course list. The department reports that the VSL program is guided by the following principles:
fiscally sustainable and contributes to national economic growth
removes financial barriers to training and improves equity of access to higher level VET
promotes the delivery of quality and affordable training for students
balances industry needs, employment outcomes and student choice
is student centred through adequate protection for students and access to information that enables informed decision making
has program integrity, manages risk and promotes confidence in the regulated VET market.4
The VSL program has been in force for over a year. Results show the program is meeting its objectives:
Completion rates have increased.
The VET course list is successfully balancing industry needs, employment outcomes and students choice.
The capping of loans to between five and fifteen thousand dollars (with the exception of aviation courses) has limited the price gouging previously experienced under VET FEE-HELP.5

The need to separate VSL from other student debts

Despite the success of the VSL program, however, some challenges remain. There is still limited capacity to measure the sustainability of the VSL program. This is because debtors' HELP repayments are not disaggregated by loan type, so debts—irrespective of whether they apply to HECS-HELP, FEE-HELP, SAHELP, OS-HELP, historical VET FEE HELP or VET student loans assistance—are made towards a single, aggregated HELP debt. As a consequence, it is not possible to accurately calculate the proportion of each form of HELP assistance that has been repaid by debtors, nor is it possible to determine the form of HELP assistance in question where debt is not being repaid.6
To address this problem, the bills would work together to separate VSL from other forms of HELP debts. This would entail amending the VET Student Loans Act 2016 (VSL Act) to:
provide that debts incurred under section 137-19 of [the Higher Education Support Act 2003] (HESA) as in force at any time before 1 July 2019 are pre-1 July 2019 VSL debts. These debts continue to be administered as HELP debts under HESA and are subject to the repayment provisions in Chapter 4 of HESA
provide that if the Secretary [of the Department of Education and Training] uses an amount of a VET student loan approved under the VSL Act to pay tuition fees for a person on or after 1 July 2019, the person incurs a debt under the VSL Act. These debts are known as VETSL debts and are administered under the VSL Act
insert provisions in the VSL Act that are modelled on Chapter 4 of HESA to provide for the calculation and repayment of VETSL debts. The repayment thresholds, repayment rates and indexation with respect to VETSL debts are the same as the repayment thresholds, repayment rates and indexation for HELP debts under HESA
provide that a person must start repaying a debt in relation to a VET student loan once they have finished repaying any HELP debts
provide that, consistent with existing arrangements for HELP debts, persons residing overseas and who have a VETSL debt are required to make repayments in respect of those debts by paying a levy to the Commonwealth (refer also to the Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018).7
This legislative change would provide greater transparency on repayment rates and help inform both policymakers and the broader public.8 As put by the department:
Separating out VET Student Loans debt from HELP debt is necessary so that the effectiveness of the new program can be assessed by measuring its fiscal sustainability. This will enable better understanding of the capacity of the VET Student Loans cohort to repay their loans, and to more accurately assess government borrowings.9
If enacted, the measures proposed by the bills would allow individuals with VSL debts to access separate statements of account for these debts from 1 July 2019.

Key issues

Although only a handful of submissions were received, these represent a range of views on the bills, as is to be expected in this complex policy area.
The separation of VSL debt from other forms of student debt as outlined by the bills received in-principle support from some providers and industry.10 At the same time, other submissions queried whether alternative means of improving transparency were available, without the need for legislative change:
The question must be asked whether this mechanism is required to achieve the stated objectives of “greater transparency of repayment rates for VET student loans and more accurate information to inform future policy decisions” (Explanatory Memorandum p.2). If this objective is sought in relation to VSL, it appears logical that a similar objective would be valuable in relation to other forms of income contingent loans including HECS-HELP, FEEHELP, SA-HELP, and OS-HELP.
Retaining all forms of such lending under the HESA but focusing on improved data management within and between the systems to deliver disaggregation capabilities would achieve the objective without need for legislative change. This would in turn improve public accountability of the other income contingent loan programs, which would benefit a wider range of stakeholders and better inform broader policy arenas.11
Although it is plausible that alternative means of increasing transparency exist, the proposed course of action was identified by the Ai Group as the optimal means of improving reporting of the repayment of VSL debt:
Ai Group regards the changes proposed by the legislation as progressive improvements to a system vital to Australia’s prosperity. These changes, as components of the whole VET Student Loan framework, will assist in providing a quality system responsive to the needs of industry and individuals. The changes help to move towards the principles Ai Group has long considered must underpin the whole system, namely, an industry–led system; national consistency; a properly resourced system; a quality system and community provision.12

Broader VET policy

Professor Quiggin's submission highlighted the failure of VET FEE-HELP, the system VSL replaced. Given this failure, the submission expressed support for the "sensible" objective of the proposed legislation—that is, separating VSL debt from other forms of HELP debt.13

Professor Quiggin concluded that:
Australia needs a comprehensive national post-school education system, in which both vocational educational and traditional ‘higher’ education are integrated and nationally funded, and from which for-profit providers are excluded.14
The committee notes Professor Quiggin's view that the implementing the primary objective of the bills should be viewed as a temporary measure 'necessitated by past policy failures'.15

The loan fee

TAFE Directors Australia (TDA) and Open Colleges both raised the loan fee which is currently applied under the VSL program, and which would remain under the proposed legislation.16 The loan fee is equivalent to 20 per cent of the value of the loan students access. The department confirmed that the bills do not propose changes to the loan fee.17

Committee view

The committee notes the concerns outlined above. However, while questions around policy differences relating to different forms of higher level education are worth examining, the committee has not received enough evidence to support the changes these submitters advocate.
The committee also notes other proposals for improving and, in some cases, overhauling the VET and broader higher education system set out in a number of submissions. However, the committee is of the view that these suggestions, although varied in their approach and merit, are beyond the scope of this inquiry.
Having considered the legislation and submissions provided, the committee concludes that the objective of the bills is sound, and that the proposed measures are a tangible step towards greater transparency and accountability. If enacted, the bills will ensure that both policymakers and students have access to more accurate information to help inform future decisions. The committee concludes that improved accountability and fiscal sustainability are worth pursuing, and therefore supports the bills in their entirety.

Recommendation 1

The committee recommends that the Senate pass the bills.
Senator Lucy Gichuhi

  • 1
    The Hon Ms Karen Andrews MP, Assistant Minister for Vocational Education and Skills, House of Representatives Hansard, 28 March 2018, p. 3057.
  • 2
    Department of Education and Training, Submission 5, p. 3.
  • 3
    Department of Education and Training, Submission 5, p. 3.
  • 4
    Department of Education and Training, Submission 5, p. 4.
  • 5
    The Hon Ms Karen Andrews MP, Assistant Minister for Vocational Education and Skills, House of Representatives Hansard, 28 March 2018, p. 3058.
  • 6
    The Hon Ms Karen Andrews MP, Assistant Minister for Vocational Education and Skills, House of Representatives Hansard, 28 March 2018, p. 3061.
  • 7
    Explanatory Memorandum, Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018, p. 2.
  • 8
    The Hon Ms Karen Andrews MP, Assistant Minister for Vocational Education and Skills, House of Representatives Hansard, 28 March 2018, p. 3061.
  • 9
    Department of Education and Training, Submission 5, p. 5.
  • 10
    See for example Open Colleges, Submission 7, pp. 1–2; Ai Group, Submission 3, p. 1.
  • 11
    Open Colleges, Submission 7, p. 2.
  • 12
    Ai Group, Submission 3, pp. 1–2.
  • 13
    Professor John Quiggin, private capacity, Submission 2, p. 2.
  • 14
    Professor John Quiggin, private capacity, Submission 2, p. 1.
  • 15
    Professor John Quiggin, private capacity, Submission 2, p. 3.
  • 16
    TAFE Directors Australia, Submission 1, p. 3; Open Colleges, Submission 7, p. 2.
  • 17
    Department of Education and Training, Submission 5, p. 5.

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