The role and funding of private VET providers
Vocational education and training in Australia
The University of Sydney Business School Workplace Research Centre reported
in January 2015 on the 'Capture of Public Wealth by the For-Profit VET Sector',
describing the mission of vocational education and training (VET):
to provide Australians with vocationally-oriented,
post-school qualifications. These qualifications serve three broad purposes: to
provide entry or progression in the labour market, to move to higher level
studies, and to contribute to social inclusion and social mobility.
Vocational education and training (VET) therefore encompasses a broad
range of education and practical training that is designed to provide workplace-specific
skills and knowledge.
VET in Australia is provided in multiple ways, including through the
public system, via technical and further education (TAFE) institutes, community
groups, industry, enterprise or union based groups and private providers.
VET qualifications are issued under the Australian Qualifications
Framework by Registered Training Organisations (RTOs).
The Department of Education and Training noted in its submission:
The Australian Government provides significant funding to
state and territory governments for the operation of the training systems.
State and territory governments have legislative responsibility for training
within their jurisdiction, including responsibility for student eligibility,
access to government subsidies, setting of strategic priorities for delivery of
courses and qualifications, and operation of TAFEs.
Although largely a state and territory responsibility, the Commonwealth government
has increasingly played a role in both the funding and the regulation of vocational
education and training and the current system provides an example of
responsibilities shared by different levels of government, as well as between
government and non-government bodies of different types:
Vocational education and training is provided through a
network of eight state and territory governments and the Australian Government,
along with industry, public and private training providers. These organisations
work together to provide nationally consistent training across Australia.
The Commonwealth increased its presence in the VET sector beginning with
the National Training System's introduction in the early 1990s, which also led
to the first user-choice funding arrangements in the sector.
Writing in the Australian Financial Review, Mr Peter Noonan described
the split in responsibilities between the Commonwealth and the states and
a somewhat messy, shared
responsibility between the Commonwealth and the states. The Commonwealth funds
about one-third of VET through the states. It regulates VET except for
state-based providers in Victoria and Western Australia. It operates an income
contingent loans scheme for VET diploma and advanced diploma students but the
states control public subsidies and fees for VET courses. The Commonwealth
provides substantial funding for employer incentives for apprenticeships and
traineeships, but the states regulate them.
The Australian Skills Quality Authority – the government body
responsible for the regulation of standards for VET providers – argues that:
...the VET sector is crucial to the Australian economy; both
for the development of the national workforce and as a major export industry.
Thus, it is of utmost importance that Australia's VET sector is
well-regulated, meets the needs of both students and employers and provides
value for money for students and the Commonwealth alike.
Regulation and funding must have as its end point the provision of a
strong and sustainable skills base for the Australian economy and communities.
Government funding in VET must ensure that investment in training is properly
targeted, contributes to economic growth and productivity, supports lifelong
learning and addresses disadvantage.
The committee is of the view that there is considerable doubt as to
whether Commonwealth activities – particularly as regards the regulation of the
sector and its funding through VET FEE-HELP – are achieving these objectives.
The recent introduction of government funding for private providers
The majority of Australia's VET training has until recently been
provided by the state-run TAFE institutes. However, non-TAFE providers,
including private profit-based institutions have also long existed alongside
the TAFE system.
While contestable public funding in the VET sector had existed across
the states before then, in April 2012 the Council of Australian Governments
(COAG) made two agreements relevant to the vocational education and training
sector: the National Agreement for Skills and Workforce Development (NASWD) and
the National Partnership Agreement on Skills Reform (Skills Reform NP).
The National Partnership Agreement for Skills Reform sought to:
contribute to the reform of the Vocational Education and Training
system to deliver a productive and highly skilled workforce which contributes
to Australia’s economic future and ... enables all working age Australians to
develop skills and qualifications needed to participate effectively in the
The Agreement identified a number of reform directions, including:
introduction of a national training entitlement and increased
availability of income contingent loans;
improving participation and qualifications completions at higher
encouraging responsiveness in training arrangements by
facilitating the operation of a more open competitive market;
recognising the “important function of public providers “ in
servicing the training needs of industries, regions and local communities” and
their “role that spans high level training and workforce development”; and
assuring the quality of training delivery and outcomes.
At the heart of these reforms is the adoption of the Commonwealth
proposal for a national training entitlement and a more open and competitive
At the same time COAG also agreed the National Agreement for Skills and
Workforce Development. The Agreement identifies the long-term objectives of the
Commonwealth and State and Territory Governments in the areas of skills and workforce
development, and recognises the interest of all governments in ensuring the
skills of the Australian people are developed and utilised in the economy.
As part of the Agreement, COAG allocated certain roles and
responsibilities to the Commonwealth and the State and Territories. Some of
these responsibilities will be shared between the two levels of government.
The Commonwealth will:
- provide funding contributions to
States and Territories to support their training systems;
- provide specific interventions
and assistance to support:
- industry investment in training;
- Australian Apprenticeships;
- literacy and numeracy; and
- those seeking to enter the
- coordinate the development and
publication of the Annual National Report as legislated under the Skilling
Australia’s Workforce Act 2005; and
- ensure data is provided as
State and Territory responsibilities
States and territories will:
- determine resource allocation
within their State/Territory;
- oversee the expenditure of
public funds for, and delivery of, training within states and territories; and
- ensure the effective operation
of the training market.
Develop and maintain the national training system including:
- developing and maintaining a
system of national regulation of RTOs and of qualification standards;
- ensuring high quality training
- supporting and implementing the
- establishing priorities and
developing strategic policy initiatives to deliver the objectives and outcomes
of this Agreement, including through the Standing Council on Tertiary
Education, Skills and Employment (SCOTESE) and supporting groups;
- ensuring RTO compliance with
data requirements as specified through regulation and contractual arrangements
for public funds, with improved access to data by students and others,
including the release of data on a national website such as MySkills and on
RTOs’ own websites;
- supporting industry to engage
directly with RTOs; and
- commitment by both levels of
government to the sharing of an agreed set of data on the training system and
the labour market.
This meant that all jurisdictions committed to pursue these reforms in
the sector, with the objective of:
Improving training accessibility, affordability and depth of
skills, including through the introduction of a national training entitlement
and increased availability of income contingent loans; and
Encouraging responsiveness in training arrangements by
facilitating the operation of a more open and competitive training market.
The Skills Reform NP also introduced the National Training Entitlement,
which guarantees a subsidised place for all working-age Australians for at
least a Certificate III at a provider of their choice.
Contestability in the VET sector drew a broad range of responses from
across relevant stakeholders.
TAFE Directors Australia (TDA), for instance, while broadly supporting
the existence in the marketplace of private providers, noted that:
some of the example of private market behaviour have not
enhanced competition, boosted skills or increased the nation's productivity.
Perhaps worst of all the trust of the community in the brand of Vocational
Education and Training has diminished.
The National Tertiary Education Union (NTEU), representing staff at
universities, research institutes and in non-teaching roles at TAFE
institutes, criticised the introduction of contestability by pointing to what
it called 'The Failed Victorian Experiment':
The evidence and analysis presented in this submission
demonstrates that fully contestable markets have undermined the financial and
education viability of many of Victoria’s TAFE institutes while simultaneously
also failing to meet their policy objectives.
In 2008 the Victorian state Brumby Labor government
introduced its Securing Jobs for Your Future reforms which, amongst other
things, made all public VET funding fully contestable between TAFE institutes
and private VET providers. These reforms led to a massive increase in VET
student enrolments, growing by 31% in Victoria (compared to only 7.3% for the
rest of Australia) over the period 2008 to 2012. The growth in enrolments was predominantly
in private research and training organisations (RTO’s). This growth is reflected
in the startling increase in the number of RTOs in Victoria, more than doubling
from 201 in 2008 to 421 by 2013, and whose share of total enrolments increased
from 14% to 48% over the same period.
While the deregulated system has led to very impressive
growth in student enrolments, it also has had negative consequences,
particularly in terms of meeting skills shortages and in workforce training and
In contrast, the Australian Chamber of Commerce and Industry argued that
contestability in the VET sector has benefited students, employers and TAFEs
The opening of the VET market has led to greater access to
training for a broader array of students, including substantial numbers of
international students. Increased competition has also led to
greater flexibility in RTOs offering courses beyond the old TAFE model of four
ten week terms with training delivered between 9am and 4pm on campus. Employers
and individual learners can now access training outside of standard working
hours, over weekends, during slow times for business and increasingly training
and assessment is being conducted in the workplace rather than on
campus. The traditional technical learning model based around
modular learning programs taught in four to ten week blocks during standard
working hours at the local TAFE campus in many cases no longer fits the needs
of students or employers. Importantly, TAFE itself has responded
favourably to competition, with many colleges offering a more responsive and competitive
service. This change in offering would not have occurred without the
sector being opened to competition.
Further commentary on the effects of a competitive training market in
the VET sector can be found in this committee's 2014 inquiry into Technical and
Further Education in Australia.
The Skills Reform NP also expanded access to the income-contingent loan
scheme to students undertaking Diploma or Advanced Diploma qualifications.
The Department of Education and Training reports that, as of 1 January
2015, there were 4,609 registered training organisations in Australia, 3,440 of
which were privately operated.
The Department provided the following figures for the number of RTOs by
type with at least one student in the public VET system as of 2013:
Private RTOs: 1368
Enterprise RTOs: 96
Adult and Community Education Providers: 329
Good intentions: how VET FEE-HELP was introduced and operated
Introduced in 2008, VET FEE-HELP is part of the Commonwealth's Higher
Education Loan Programme (HELP) and provides loans to eligible students
undertaking higher level (diploma and above) VET qualifications.
The intention behind VET FEE-HELP was to make available for students
options which otherwise they might not have, particularly for financial reasons.
The Department of Education and Training explained that:
VET FEE−HELP makes study possible for students who would
not otherwise be able to undertake training due to the upfront costs.
VET FEE-HELP provides the same level of financial support to VET
students as has been provided to university students since the 1980s when the
former Higher Education Contribution Scheme (HECS) program was introduced. It
allows access to education, where access might otherwise be impossible because
of the cost of further education.
As with other components of the HELP system, loans are repaid through
the taxation system once a compulsory repayment income threshold is reached.
Individuals also have lifetime limits for the total amount of VET FEE-HELP
loans they can access.
While this lifetime limit can protect students from accruing unmanageable
debts, the committee noted that this may also cause problems for students who
access VET FEE-HELP while attaining qualifications which ultimately have little
worth in finding or improving employment and thus have limited access to VET FEE-HELP
loans to later supplement their training.
Access to VET FEE-HELP is not available to all students undertaking VET
courses; providers must be approved by the Department of Education and Training
to become eligible to offer access to VET FEE-HELP to their students.
In order to become a provider eligible to offer VET FEE-HELP courses, an
RTO applies to the Department of Education and Training. The Department
outlines the requirements for an organisation to be considered eligible:
Your organisation must:
be a body corporate—this is not a requirement for
organisations that are a specified body and are applying in the VET sector
pass the ‘fit and proper person’ test—this is not a
requirement for specified bodies
have its business, management and control in Australia
have, or be taken to have, education as its principal purpose
be a registered educational organisation.
In addition, to be considered as a VET FEE-HELP provider, RTOs must:
offer at least one eligible course, and provide tuition
assistance for all eligible courses
be, and be likely to remain, financially viable
meet the requirements to ensure it treats its students fairly and
meets the privacy requirements
administer its fees correctly
be able to administer the loans scheme once approved and provide
data to the Department.
In 2013, just over 100,000 students accessed VET FEE-HELP loans,
totalling $699 million worth of loans.
Notably, in recent years the number of students accessing VET FEE-HELP
loans has increased significantly, as the following table illustrates:
Students accessing VFH
loan per student ($)
Department of Education and Training, Submission 48, p. 13.
As demonstrated in the table above, the numbers are rising across all
categories: number of students enrolling in courses financed by VET FEE-HELP
loans, the average size of those loans, the corresponding overall cost of the
VET FEE-HELP programme from the Commonwealth's perspective and the number of
providers of VET courses who are opting in to the VET FEE-HELP system.
The Department of Education and Training Portfolio Budget Statement
reveals that 225,500 students will access a VET FEE-HELP loan in 2014-15. Although
this will be moderated by recent changes and fall back to 128,000 in 2015-16,
the expectation is that growth in this program will accelerate to again reach
225,000 students in 2018-19.
Consequently Higher Education Loan Program expenses will increase from $2.4
billion in 2015-16 to $4.4 billion in 2018-19.
As of 2013, Government subsidised students fell into the following
Department of Education and Training, Submission 48, p. 2.
In 2014, 1.79 million students were enrolled in government-funded VET
courses. Broken down by provider type, there were:
1.08 million (60.6%) students at TAFE and other government
95,500 (5.3%) at community education providers;
582,500 (32.6%) at other registered providers, such as private
for profit providers, industry and union organisations and other specialist
26,300 (1.5%) attending various provider types.
The Australian Education Union noted in its submission:
The remarkable expansion of the VET “market” has taken place
very quickly. Between 2008 and 2013, expenditure on payments to non-TAFE
(private) providers increased by $839.4 million, or 160 per cent.
Yet despite TAFE enrolling nearly twice as many government-funded
students in VET courses as were enrolled with other providers, as the
Australian Education Union notes, 'More than 75 per cent of VET FEE-HELP
funding goes to private for-profit providers'.
While TAFEs have a considerably higher market share than private/enterprise
RTOs, a reflection of the broader remit TAFEs have and the variety of types of
RTOs, which range from small providers focused on specific industries to
multi-campus organisations with thousands of students across a variety of
There is concern that if the Victorian experience of contestability is
reflected nationally, then the role of TAFE could become residual as private
providers skim low cost, high volume courses from the public provider –
supported by the implicit subsidy offered by VET FEE-HELP.
To date much of the attention has been on predatory behaviour within the
private RTO industry – both in terms of misleading practices and strategic
However, many private RTOs do not fall into this category. The committee
has heard evidence of quality private RTOs with a long history in providing
excellent educational offering relevant to industry and their communities.
Market reform – which must come if the private vocational education
industry is to have a future in Australia – must involve consolidating and
recognising the excellence that has long existed in the industry.
The committee is of the view that the hyper competitive reality of
unrestricted contestability must give way, and ways in which both TAFE and
private RTOs can complement each other to provide a more complete range of
Mr Martin Powell, Victorian Executive Officer of the Australian Council
for Private Education and Training commented:
I think that is where the private providers complement the
TAFE delivery because they have certain community service obligations and they
run larger overheads with infrastructure et cetera having a full service model,
so the flexibility of our members and any of the state training authorities
being able to provide some training dollars via that other means not only adds
choice to the student but gives probably a broader scope of delivery.
Education for profit or need?
Throughout this inquiry, the committee heard that a fundamental problem
with private provision of VET courses is that educational priorities are
sometimes at odds with the profitability considerations central to the
operation of a business.
The Consumer Action Law Centre commented:
Corporate private VET providers are obliged to act in the
interest of the company, which means generating returns for shareholders is a
priority. While not mutually exclusive to teaching and learning, scholarship
and quality education, this clearly creates a tension between acting in the
best interests of students (which often involves capital expenditure on support
services) and maximising profits.
Concerns were raised by submitters that one of the most direct effects
of opening the VET sector up to contestable government funding has been that
providers have based their course offerings on access to government funding and
not on training students for areas in which skills shortages exist. Given the
VET sector exists, primarily at least, to prepare students for employment, this
may represent a critical problem with the sector as it currently stands.
The Australian Council of Commerce and Industry noted:
There is no doubt that course offerings and training
behaviour is driven by government funding provision, and although this does not
always deliver a bad outcome, there is sufficient evidence that the needs of
students and employers are not always the top priority for some training
providers... Basing training course offerings on what funding is available has
led to a distinct disconnect between the types of courses being offered by RTOs
and the types of skills in demand by employers.
The submission from the Australian Council of Trade Unions (ACTU) noted
that one of the shortcomings of the expansion of government funding to private
providers is that there was no corresponding focus on ensuring that the courses
attracting such funding options represented value for money in terms of public
Evidence [has been reported] of courses and qualifications
that attract VET FEE-HELP funding but which appear to be of doubtful value for
the overall economy and which are not linked to any assessment of current and
future skill priorities and job opportunities. This includes courses in
hypnotherapy, aromatherapy and Christian proselytising.
Service Skills Australia noted that:
A common and significant concern has been the practice of
'rogue' providers opportunistically 'chasing funds'. Therefore, when subsidies
were reduced in some areas, providers would quickly redirect into new,
better-funded areas, which industry reported were often providers with minimal
connectedness or expertise in these fields.
As businesses, private providers are primarily motivated by their own
profitability. Correspondingly, provision of VET courses by for-profit
providers is likely to be driven at the provider level by the desire to
maximise margins by minimising the costs inherent to offering courses.
Thus, when considering which courses to offer, private providers may
look to courses which can be run in a cost-efficient manner, qualifying
students in courses which may not necessarily correspond to identified skills
shortages or industry needs.
In her evidence to the committee, Ms Sue Boyd, Head of the Guild
Pharmacy Academy, argued that one of the principal negative effects of the
growth of contestability in the VET sector has been the development of an
environment where 'providers, rather than industry, drove the training agenda'.
Examples of courses driven more by cost efficiency and profitability
criteria than industry need include management and business courses, as noted
by the Consumer Action Law Centre:
'Management and Commerce' was the most common field of
education undertaken by students accessing VET FEE-HELP loans in 2013,
representing 44 per cent of total course enrolments. One example of a provider
specialising in these kinds of low cost courses is the Australian College of
Training and Employment (trading as Evocca College), the largest single
recipient of VET FEE-HELP loans. The Workplace Research Centre reported that
Evocca's website indicates it solely caters for diploma studies in business,
information technology and media, community services, and tourism.
In discussing the business strategies of private for-profit providers,
the Workplace Research Centre noted:
As a business model, for-profit training provision is
currently supported by strong demand-side factors,
driven by the continued rollout of VET entitlement funding and extension of VET
FEE-HELP, and underpinned by educational policy targeting higher levels
of skills and qualifications, and increasing credentialism across the labour
The profit maximisation principles of these providers (and
the primacy of shareholder and owner interests) provide strong incentives to
offer training which attracts the highest subsidy, at the lowest cost.
These low cost strategies may include delivering training
online, within abbreviated time periods (as there is no minimum duration
requirement for a given course of study), as well as by minimising the cost of
teaching staff, the rent attached to physical campuses, and the investment in
equipment needed for certain courses.
The data suggests an incredible growth in costs in both the state
government subsidised market and the full fee paying market. According to the
Department of Education and Training’s VET FEE-HELP Statistical Report 2013,
the take-up rate of VET FEE-HELP loans for state subsidised enrolments
increased by 18 points in one year from 56.8 percent of students studying a
state subsidised course in 2012 to 74.3 percent in 2013, suggesting that cost
shifting from the states to the Commonwealth is occurring.
In 2013 the Commonwealth provided VET FEE-HELP loans to 93.3 percent of
student in eligible courses, including 95.8 percent of students in full fee
paying eligible courses.
The behaviour of private providers – especially for profit private
providers is altering as a result. Australian Careers Network – to cite just
one example – has flagged to investors that VET FEE-HELP is a growth
Government funded vocational education is seen as a significant
opportunity for profit. According to the Workplace Research Centre at the
University of Sydney,
Based on the results of the publicly-listed for profit
providers, the for-profit VET sector appears to sustain profit margins of
around 30 percent. This indicates that every dollar of public subsidy paid
results in 30 cents of profit for distribution to the company’s shareholders.
It is estimated that in Victoria in 2013, about $277 million in profits was
generated across the for-profit VET sector, based on over $799 million worth of
training subsidies. Just three companies are estimated to have extracted at
least $18.3 million in profits from Victorian taxpayers in 2013. This rate of
return well exceeds benchmark norms set by comparable industries, such as child
care and transport.
As will be discussed in later chapters, the impacts on quality are hard
to quantify. The Workplace Research Centre suggests that ownership structures
of large for profit RTOs are oblique, with unclear lines of accountability, and
a prevalence of third party sub-contracting of the delivery of training which
has to date fallen outside the jurisdiction of the national regulator – ASQA.
The committee notes concerns have been raised that private VET providers
base course offerings on profitability rather than identified needs and that
this suggests the for-profit sector may undermine one of the key elements of
VET provision, which is preparing students for employment.
The committee is of the view that VET FEE-HELP, while well intentioned,
has distorted and damaged the private training market, with the lure of
government funded student loans being too great for private for profit
companies to ignore. There is a strong case to continue to restrict and
consolidate approved providers.
Costs for students are out of
control under VET FEE-HELP
An issue raised during this inquiry is that costs of courses have
increased steadily as a consequence of the extension of the Commonwealth's loan
scheme to VET courses. This has substantially increased the size of the debt
students may be obliged to incur in order to attain the qualifications they
This can be explained primarily because the introduction and expansion
of access to VET FEE-HELP substantially raised the amount of money students
were able to spend on their chosen course: access to a loan scheme enabled
students to pay more, which in turn allows providers to charge more with the
knowledge that the Commonwealth Government is ultimately responsible for the
loan paying for the course.
The College for Adult Learning argues that this was not the immediate
effect, as greater contestability originally had the result it was intended to
have, which was to lower the cost of training:
Initially, the implementation of contested funding and a user
pays market had a significant effect on the price of a Diploma – it dropped
dramatically. While this has ultimately had an adverse effect on TAFE
presumably private providers were surviving and thriving. After all, with
online training especially, they had low operating costs with lean management
structures. Yet, with the growth in VET FEE-HELP the price of a Diploma has
skyrocketed to $18,000 in some cases. Sure, the cost of administering the
strict reporting requirements of VET FEE-HELP would add some additional costs
to the price but, it is hard to justify a price increase 2, 3 or even 4 times
the original advertised price.
The Australian Council of Trade Unions (ACTU) made a similar point in
Invariably, [income-contingent loans] also result in course
fees being increased. This was evident from the early experience in Victoria
where VET-Fee Help was first introduced. Standard fees for diplomas tripled to
$2500 when loans were introduced there in mid-2009, while government-subsidised
diplomas in other jurisdictions were less than half that amount in most cases
($990 a year in Tasmania, $1212 in Western Australia, $1350 in the ACT and
$1570 in NSW).
The trend of rising costs for VET FEE-HELP eligible courses was also
noted by the Consumer Action Law Centre, who provided the following
Given that private VET providers with access to VET FEE-HELP
and government funding have near-guaranteed income, we consider that many
private VET courses (particularly online courses) are excessively expensive.
For example, the Double Diploma of Business & Management from Careers
Australia costs $23,250 in most Australian states. The Double Diploma of
Business & Management course at TAFE Queensland South West costs just $6,800.
Asked about this price discrepancy and whether it was a consequence of
the VET FEE-HELP loans scheme, Mr Patrick McKendry, CEO of Careers Australia,
The government loans scheme is the mechanism by which the
cost of the tuition fees becomes affordable and accessible. That is no
question. I suspect that the reason there is a price difference between the
public and the private provider in that circumstance again goes to the public
provider's ability to offset some of the costs of operating a business, whether
it is operating expenditure or capital expenditure. Our approach is simple: to
factor in all the inputs and to operate on a reasonable return. It does not
always work that way—for example, in trades apprentices we do not get anywhere
near the 20 per cent margin [Careers Australia aims for]. In nursing we do not
get near the 20 per cent margin. Our pricing in those areas again takes a range
of factors into account, including what the market is charging.
Course costs are not just increasing over time as a consequence of VET FEE-HELP.
As noted in the submission from the University of Melbourne Graduate School of
Education, they are also increased compared to courses paid for in ways other
than via VET FEE-HELP loans:
The average fees paid by students accessing VET FEE-HELP are
higher than average fees paid by students who were eligible but did not access
the income contingent loan.
Data on average loan debts at some major VET private providers shows the
degree of course cost inflation: in response to questions during Budget
Estimates in June 2015, the Department of Education and Training reported to
the committee that the average VET FEE-HELP loan debt in 2012 was $8607. In
2013, it was $10, 621 – an increase in average VET FEE-HELP loans of 23 per
cent from 2012 to 2013.
Like the ACTU, the Melbourne Graduate School of Education noted that
course costs vary dramatically across the states.
Another point raised regarding students paying for their course via VET FEE-HELP
was that completion rates for students paying for their course up front are
higher than those for students who are doing so through VET FEE-HELP. This was
noted to be particularly true for Aboriginal and Torres Strait Islander (ATSI)
students, students aged 25-44 and students outside major cities.
This evidence suggests that the current loans system enables students to
incur large debts, possibly in courses with minimal employment benefits, while
correlating with a decreased likelihood of course completion. It also raises
questions about the extent to which VET FEE-HELP is fit for purpose and whether
it can further disadvantage students from disadvantaged backgrounds.
Completion rates will be more fully discussed in chapter 4 of this
report, but the National Centre for Vocational Education Research's (NCVER)
data demonstrates that completion rates across all levels of program total 34
Diploma and above
National Centre for Vocational Education Research, The likelihood of
completing a government-funded VET program, 2009-13, Table 3.
The opportunities for profitability for private VET providers also
encourage the predatory marketing practices seen in the sector, as will be
discussed in Chapter 3.
Are we getting what we are paying for? The consequences of contestability
and VET FEE-HELP on the Commonwealth budget
In the 2014-15 financial year, the Commonwealth Government allocated
$3.2 billion directly to VET provision, made up of $1.81 billion for states and
territories and $1.4 billion through the Commonwealth's own programmes.
The combination of contestability and student access to VET FEE-HELP has
encouraged the market to maximise profits, as discussed above. Yet, as the AEU
points out, the consequence is massively increased government spending in the
There has been a huge increase in low-cost, high volume
courses. This is because the market settings that governments have put in place
are designed to encourage the growth of private providers in the sector in
order to stimulate competition, based on the logic that this will
simultaneously drive down costs and drive up quality. Low-cost, high volume
courses are the ones that make most profit – but they also lead rapidly and
inevitably to cost blow-outs, as the experience of Victoria and South Australia
A consequence is that, while some students are given the opportunity to
undertake courses they could not otherwise afford, VET providers can consider
student enrolments as risk-free:
Training providers sign up students with the fees covered by
VET FEE-HELP. The risk of the loans never being repaid is borne by the
Australian Government not the training provider. Less reputable operators have
an incentive to sign up students irrespective of their capacity to complete the
course or the appropriateness of the qualification.
Mr Andrew Norton, Higher Education Program Director at the Grattan
Institute, submitted that vocational education qualification holders are less
likely to repay VET FEE-HELP debt than higher education qualification holders
because of their lower earnings profiles, and estimated that :
40 per cent of VET HELP money lent to people with diploma and
advanced diploma qualifications will not be recovered, compared to 21 per cent
of HELP lent to people holding bachelor degrees.
Mr Norton detailed gender and field of education that contribute to the
non-payment of VET FEE-HELP debt, and suggested that ‘the high rate of
non-completion in vocational education and among VET FEE-HELP borrowers may
exacerbate doubtful debt problems’.
As Mr Norton pointed out, students not repaying their VET FEE-HELP loan
– for any reason – places substantial financial burden on the Commonwealth:
HELP is an expensive program. Aside from administrative
expenses, the main costs are interest subsidies and debt not expected to be
repaid, commonly known as doubtful debt... The Department of Education has
provided projections on doubtful debt costs. These are forecast to escalate
significantly, reaching $2.3 billion in 2017-18.
While this figure encapsulates all HELP debt, not just VET FEE-HELP, Mr
Norton notes that:
It is likely that VET FEE-HELP is contributing
disproportionately to HELP doubtful debt. This is because vocational education
diploma and advanced diploma students on average will earn less over their
careers than higher education students.
The rate of doubtful debt borne by the Commonwealth is further
influenced by two factors identified by the Melbourne Graduate School of
Education: that average fees have risen in recent years – increasing the size
of VET FEE-HELP loans and therefore debt – and that completion rates for
students accessing VET FEE-HELP loans for their courses are lower than for
students who pay upfront.
Evocca College argues that, while VET FEE-HELP has brought equity to the
education system by extending to vocational students the types of loans
previously confined to university-based students, the high threshold for
compulsory repayments of the loan can have negative effects:
Accordingly, many students do not have 'skin in the game' and
can take the attitude that they will never have to repay their debt.
Accordingly, they may not take their studies as seriously as they otherwise
Mr Norton suggests that, for the Commonwealth:
A lower threshold for vocational education students would
reduce the cost of doubtful debt. The threshold proposed in the Higher
Education and Research Reform Bill 2014 would reduce doubtful debt from 40 per
cent to 30 per cent... this savings measure should be reintroduced in the
interests of HELP's long-term cost effectiveness.
The committee is deeply concerned about the escalating cost to the
Commonwealth of the VET FEE-HELP scheme, and the consequences for the
Given the numerous concerns expressed to the committee and in the
national media about the quality and relevance of the education and training
students accessing the scheme are receiving there are grounds to conclude that
much of this additional investment in vocational education that VET FEE-HELP
represents is currently being wasted, or milked for profit. This is a tragedy
not just for the Australian taxpayer, but for individual students, many of whom
are left without a qualification – or worse a useless qualification – and a
debt to the Commonwealth.
The committee is not convinced by arguments that policy reform that asks
students at below or near the minimum wage to pay back loans is fair or
efficient. Serious attempts must first be made to ensure that VET FEE HELP
operates as a distinct scheme, fit for purpose, and that those who sign a
student up to a course – be they a provider or a third party broker – are held
responsible not just for marketing behaviour but outcomes for the student,
industry and the Commonwealth.
The Mitchell Institute for Health and Education Policy (the Mitchell
Institute) at Victoria University is an independent think tank with a focus on
improving the connection between evidence and policy reform. In 2014, it
published a policy paper (the paper) examining Australia's expenditure on
education and training over the last decade.
The paper indicated that a disjointed approach to funding of education
and training existed across Australia, and suggested that this was
counterproductive to the notion that investment in people, their skills and
their ideas, is fundamental to competing and prospering in a global economy.
More recently, the Mitchell Institute labelled the approach to funding
settings across education in Australia, as 'piecemeal':
Australian governments are prioritising their investment in
some aspects of education over others - with schools and universities the
beneficiaries and VET in real decline. Further, this is occurring in the
absence of an explicit, or even apparent, policy logic or rationale.
Clearly, this approach has the potential for serious and long term
consequences to areas of education that fail to attract policy attention or
funding. The Mitchell Institute noted specifically:
In Australia we tend to foster expertise in schools, VET and
higher education respectively, with these divides often reflected in the
portfolio arrangements of governments. Analysis confined to one sector is the
norm, with broader thinking the exception
Of course, this disjointed approach is encouraged by the
division of responsibilities under our federal system. As recent experience and
attempts at reform have highlighted, a tricky web of historical precedent,
national objectives and broader Commonwealth/State relations can combine to
thwart or distort attempts at policy development.
The paper outlined a summary of key findings which are useful in
comparing with the 2015 results:
Comparative analysis of expenditure on education across the three
sectors shows a clear trend –
while spending on schools and universities has risen significantly over the
last decade, there has been a much lower rate of growth in VET spending;
Total expenditure grew only 15 per cent for VET over the ten
years to 2012-13, while schools and higher education experienced growth of 23
and 40 per cent respectively over the same period;
Expenditure on VET amongst the states and territories is uneven.
In Victoria, expenditure on VET grew at an average of 4.2 per cent per year
over the ten years to 2012-13, whereas New South Wales and Queensland averaged
zero and negative growth over the same period; and
Analysis of expenditure per student also saw VET falling short.
In higher education, expenditure per student has been relatively stable, while
spending per student in government secondary and primary schools has increased
20 per cent 30 per cent respectively. Meanwhile expenditure per hour of
training in VET actually decreased around 25 per cent over the same period.
In light of these findings, the issue was revisited. In doing so, it was
observed that there has been a 'national disinvestment in VET' that, rather
than improving over time, has 'intensified' with expenditure on the sector
dropping in the year between the two reports. 
In contrast to the earlier report, the Mitchell Institute's 2015 paper
focussed specifically on income contingent loans and private contributions to
non-government schools, with analysis indicating:
Government payments to tertiary education and training providers
for income contingent loans have grown rapidly, rising from $3.3 billion in
2008 to nearly $6 billion in 2013; and
Growth in private contributions to school education, with
non-government school income from private sources increasing by over 20 per
cent from 2005 to 2011, to $7.9 billion.
To summarise, the 2015 paper found that while expenditure on higher
education has grown over 40 per cent over the eleven years to 2013-14, and
expenditure on schooling has grown approximately 25 percent during the same
period, expenditure on VET has grown much more slowly, by around 15 per cent
until 2012-13. Alarmingly, the 2015 paper found that in the most recent year,
expenditure has experienced a sharp decline, with total VET expenditure in
2013-14 around 5 per cent higher than 2003-4 levels.
The committee notes the Mitchell Institute's conclusion that 'education
funding in Australia needs to be coherent and integrated, rather than the
current ad hoc and piecemeal approach'. Further, the committee is of the view that
such an approach is more likely lead to expenditure in the areas that will
better prepare the Australian labour market for the future.
The demand driven nature of funding for providers – both in the
state and Commonwealth jurisdictions – has come under question. During a public
hearing, Mr Rod Camm, CEO of the Australian Council for Private Education and
Training was asked whether he agreed with the assertion made by the review that
a demand-driven VET system is vulnerable to a range of market failures and
equity issues. He responded:
If it is not designed. It is all
about how you design the marketplace. You cannot just put money out there and
hope for the outcome. It comes back to your original questioning. We want state
governments to make sure that they design the market and make sure they monitor
the market, and if a provider grows incredibly quickly, then bring them to the
table and look at it closely.
The committee is of the view that VET FEE HELP differs from other
Commonwealth income contingent loan programs in two respects. Firstly, that the
control on the number of providers has been unacceptably loose and secondly
that there is no effective price control. In the absence of both of these the
committee is of the view that the current policy settings of VET FEE-HELP pose
an unacceptable risk to the Commonwealth.
The nature of this type of demand driven program, which in theory should
be driven by student and industry demand (end users), has in practice been
driven by supplier behaviour. This is, in the committee’s view, a major flaw in
the policy design of VET FEE HELP.
The committee recommends that, given the evidence of rampant abuse,
accelerating costs, and doubling of bad debt the government launches an
immediate review into the operation and regulation of VET FEE-HELP.
The Committee recommends that this review considers the most
effective way to control costs of courses for students under VET FEE-HELP by
either instituting a lower and separate loan limit or a cap on student loan
2.111 The Committee further recommends that this review considers the most
effective way to limit provider access to VET FEE-HELP so that only providers
with the highest reputation for quality have unfettered access to the scheme.
The Committee recommends that the government mandates minimum entry standards
of year 12 completion or equivalent for access to VET FEE-HELP loans for
Diploma level courses and above.
2.112 The Committee opposes suggestions to lower the repayment threshold to
$30,000 or $40,000. Asking lower income earners to pay for the failure of
government to properly regulate the operations of VET FEE-HELP – and for the
rampant and unethical misbehaviour of some private providers – fails both the
practical and ethical test.
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