Audit Report on Australian Vocational Student Loan Scheme

The Australian National Audit Office has issued a 68 page report on the Administration of the VET FEE-HELP Scheme (December 20, 2016). The Auditor found "The VFH scheme was not effectively designed or administered. Poor design and a lack of monitoring and control led to costs blowing out even though participation forecasts were not achieved and insufficient protection was provided to vulnerable students from some unscrupulous private training organisations." (page 8).

A new VET Student Loans scheme, designed to address deficiencies in the old one, starts1 January 2017. Unfortunately it took the government several years to act, resulting in billions of dollars wasted. It will be interesting to see if similar reforms are introduced to the university student loan scheme, which has some of the same deficiencies as the old VET scheme. In particular, education providers are permitted to offer university degree programs for which there are no jobs.

"Conclusion

7. The VFH scheme was not effectively designed or administered. Poor design and a lack of monitoring and control led to costs blowing out even though participation forecasts were not achieved and insufficient protection was provided to vulnerable students from some unscrupulous private training organisations.

8. The design of the expanded VFH scheme in 2012 was weighted heavily towards supporting growth in the VET sector, but an appropriate quality and accountability framework addressing identified risks was not put in place. As the responsible department, Education did not establish processes to ensure that all objectives, risks and consequences were managed in implementing the expanded scheme. In effect, the department’s focus on increasing participation overrode integrity and accountability considerations that would have been expected given the inherent risks. The department inadequately considered the implications of the changed incentives facing providers and students in the expanded scheme and its role in ensuring effective regulation in conjunction with other regulators—principally the Australian Skills Quality Authority and the Australian Competition and Consumer Commission. There was also a lack of data analytics capability in Education and little internal management reporting or analysis of the VFH scheme to identify emerging problems. The department did not develop measures to assess broader objectives of the scheme (beyond growth) including those related to value and quality in the VET sector. In redesigning the VFH scheme, insufficient regard was given to relevant experiences in other jurisdictions, particularly Victoria, and the risks identified in a Regulation Impact Statement.

9. The administration of the VFH scheme did not safeguard its operation, and did not support the achievement of objectives relating to integrity, quality, value and sustainability. Similar to the scheme’s design and implementation failures, there were weaknesses in Education’s administrative processes for: approving VFH providers; developing and undertaking risk, fraud and compliance activities; controlling payments to providers; making information readily available to students about their rights and obligations under the VFH scheme; and managing and resolving student complaints. While improvements were made to many of these processes in 2016, the initiatives were in place for a relatively short period of time prior to the cessation of the VFH scheme from 31 December 2016."

From  Administration of the VET FEE-HELP Scheme , page 8, Australian National Audit Office, December 20, 2016.

Extend Vocational Education Reforms to Australian Universities?

Reforms to the Australian Vocational education and Training  (VET) Student Loans program will come into effect on 1 January 2017. These will:

• "limit eligibility to courses to those that align with industry needs and have a high likelihood of leading to employment opportunities
• cap loans at $5,000, $10,000 and $15,000 to reflect the cost of delivery (with higher caps for courses with high delivery costs such as aviation)
• require students to regularly engage with the VET Student Loans online portal to ensure they are active and their enrolments are legitimate 
• set a much higher bar for providers to enter the program, with a new application process to assess providers’ relationships with industry, student completion rates, employment outcomes, and their track record as education institutions
• strengthen legislative, compliance and payment conditions, including increased powers to suspend poor performing providers from the program, cancel their payments and revoke their approval
• ban brokers, cold-calling, providers using third party lists to contact students, or incentive-based sales tactics
• limit the subcontracting of training to stop providers ‘selling access’ to higher-fee loans arrangements to training organisations that don’t meet the higher bar to qualify."

From "Stronger vocational education system delivered", Simon Birmingham, Minister for Education and Training, 1 December 2016

It will be interesting to see if the government brings in similar reforms for the university sector, which has its own loans scheme on which the failed VET scheme was based. While there is not the same level of misuse of the university scheme apparent, there is currently no requirement for university programs to align with industry need. If students were also required to undertake Higher Education in smaller increments (first a month long VET Cert IV, then a six month university Certificate, followed by university programs each of no more than two years) these measures would reduce cost and boost completion rates.

Australian Higher Education Loan Programme Blowout

The Australian Parliamentary Budget Office (PBO) has released "Higher Education Loan Programme: Impact on the Budget"
(Report no. 02/2016, 6 April 2016). The PBO estimates student loans will rise from $1.7 billion in 2015–16 to $11.1 billion in 2025–26. The cost from the government charging a low interest rate on the loans and the proportion of students who do not have to repay loans.

The interest rate could be increased to cover the government's costs of borrowing, while still offering a rate lower than a student could borrow money themselves. However, the doubtful debt (loans not repaid) is more problematic. The BPO expects doubtful debts to increase from the current 19.0% of loans, to 21.8% in 2025–26.

Students previously did not have to repay the loan if they moved overseas (this loophole was closed in 2015). Students do not have to begin replaying the loan Ubuntu their income reaches a threshold.

The BPO notes that the VET FEE-HELP loans expanded rapidly after being introduced in 2009. This is for diplomas and other sub-degree programs. There were dubious practice by some training providers to sign up students who were unlikely to complete. A freeze was introduce from 1 January 2016, but there are jet to be effective measures put in place for the sector.

Simon Birmingham, Minister for Education and Training, issued a statement, not unreasonably, blaming the cost blowout on the former government and asking for "ideas from the sector, experts and students on how to make student funding sustainable" ("The increasing costs of higher education",6 April 2016).

I am no expert, but as someone who designs and delivers higher education and is a graduate student, I suggest the government could expand the VET FEE-HELP loans to cover shorter sub-diploma programs. Both the VET and university schemes should require education providers to offer a sequence of qualifications, such as certificate - sub-diploma - diploma - degree. This would encourage students to undertake as much study as they need to get a job (or a promotion) rather than the maximum loan allowed for. This would also increase the chances of success, as a student who has completed a certificate is more likely to be able to go on to a diploma.

The government could also provide incentives for programs in areas of vocational need (as state governments do already).

Repayment of Student Loans by Australians Overseas

From 1 January 2016, Australians with student loans  are required to make repayments while living overseas. The Australian Taxation Office will collect the payments. Previously students did not need to make repayments unless they lived in Australia. This is expected to recover a modest $150M over ten years.