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Federal Government to overhaul funding arrangements
Following on from our previous article, we provide an update on recent announcements regarding a new funding scheme for the VET sector, and comment on the possible implications for private tertiary education investors and financiers.
- There will be significant funding changes for RTOs in 2017, with the existing VET FEE-HELP scheme being replaced by a new scheme, VET Student Loans, commencing January 2017
- Changes may negatively affect both margins (how much providers are able to charge) and volumes (enrolment numbers). These include loan caps and eliminating Government loan funding for potentially hundreds of courses
- The use of brokers or marketing agents has been banned
- Those involved in the management of providers that break the law could be made personally liable.
Impact of changes
The legislation to overhaul Commonwealth government funding for the vocational education sector was put to Parliament on 13 October. The reforms scrap the existing VET FEE-HELP scheme and introduce a new scheme, VET Student Loans, commencing January 2017. The changes may have a significant impact on all providers.
The key changes include:
- Reducing the list of courses eligible for taxpayer-funded loans – the Government is proposing to reduce the number of courses funded from 825 to around 3501, with a focus on courses of “national priority” that meet industry needs and lead to employment2. Courses funded under the new scheme prioritise science, technology, engineering and mathematics (STEM) and, according to the government, align with employment skills required by the states and territories
- Loan caps – loans will be capped, with courses grouped into bands of $5000, $10,000 and $15,000 which apply regardless of course delivery mode
- Current VET FEE-HELP eligible providers will be granted provisional approval as a provider for a six month transition period from 1 January to 30 June 2017, subject to certain eligibility criteria. The criteria include whether the provider is subject to an active compliance action, compliance history, and a range of quality measures. Students accessing VET FEE-HELP funding can continue to do so until 31 December 2017
- Private VET FEE-HELP providers will need to apply for approval under the new scheme during the transition period. TAFEs, publically owned RTOs and Australian universities (where accredited as RTOs) do not need to apply for approval under the new scheme
- Providers will no longer be able to use brokers or marketing agents.
Approximately 45% of all VET FEE-HELP accredited RTOs derive over 80% of their revenue from VET FEE-HELP funding, with the remaining 55% of RTOs deriving 50-80% of their revenue from VET FEE- HELP3. The significant reduction in the number of courses being funded may be of particular concern to providers who predominantly offer so-called “lifestyle” courses. The introduction of loan caps may have a significant impact on all providers. Reports suggest that providers are often charging significantly more than the proposed cap for a given course4. Under the new scheme students will be required to pay this difference either up front or over the life of the course, which is may to reduce enrolment numbers. There may be exemptions from loan caps for courses that provide a significant social benefit but have high delivery costs such as nursing or aviation however.
The changes also improve the Government’s enforcement and investigative powers, and introduce personal liability for “executive officers”5 in certain circumstances. With a number of providers being investigated and prosecuted by the ACCC, and a large number of providers in the process of being audited by the Department of Education and Training or being reviewed by ASQA, it seems likely these expanded enforcement and investigative powers will be put to good use. It will also be interesting to see the extent to which the personal liability provisions act as a deterrent to unscrupulous operators.
1. Australian Associated Press, 13 October 2013, VET loans crack down goes to parliament
2. Australian Government Department of Education and Training information sheet, Information for current VET FEE-HELP approved providers
3. VET FEE-HELP Redesign Regulation Impact Statement, Department of Education and Training
4. Australian Financial Review, 11 October 2016, Big private colleges hit by new cap on fees
5. “…a person (whether or not a director of the provider) who is concerned in, or takes part in, the management of the provider.” - VET Student Loans Bill 2016 (Cth), Part 1 Division 6