Non-government Student Loans for Vocational Programs

Australian startup company Study Loans Pty Ltd is offering loans to students for 6 to 48 months. Rates are 12% to 18% depending on the students credit rating and the education provider's track record. This compares to zero interest on a government VET Student Loans.

No interest is charged on government loans, but they are indexed to the CPI and so the amount to be repaid can increase, depending on inflation. Also the range of providers which students can apply for government loans for has been reduced, in response to poor performance by some providers. So there may be scope for a commercial alternative.

Study Loans Pty Ltd provide a loan calculator, so students can get an idea of the cost. However, the default settings are for 24 months repayment. Students on low incomes may have difficulty with repayments. Increasing the repayment to the maximum of 48 months considerably increases the interest to be paid.


Student Loans Pty Ltd is currently offering loans for courses at 38 education partners. Most of the partners are Registered Training Organizations, offering courses also available at other commercial RTOs and government TAFEs. As an example "Academy of Makeup" offers the  a Diploma of Screen and Media-Specialist Makeup Services (CUA51015). Other providers, such as General Assembly and The Plato Project, appear to be offering courses outside the RTO system.

By focusing on a small range of providers and carefully monitoring student progress, Study Loans Pty Ltd may be able to improve on the success rate of the government loans system, proving a better result for both the students and the company. However, there may be some downsides to the Study Loans Pty Ltd approach, in terms of cost and recognition of qualifications.

Government TAFEs generally charge lower fees than commercial VET providers for the same nationally standardized qualification. As an example, Academy of Makeup's Diploma of Screen and Media-Specialist Makeup Services (CUA51015) is $11,900. The same standardized qualification is $4,060 at TAFE NSW: just over one third the commercial provider's fee. Of course, the student may consider the extra cost for a commercial provider worthwhile, if it provides a superior education (or the student can't get into TAFE).

Student Loans Pty Ltd also partners outside the RTO system. Students may prefer a provider who offers something different to the homogenized, standardized VET programs. But the students may find their qualifications not recognized by industry, or by educational institutions.

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.

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.

Why Students Choose Expensive Commercial Courses

in "Understanding For-Profit College and Community College Choice" Iloh and Tierney (2014) have investigated why US students choose courses at for-profit private colleges, over lower cost government run community colleges. This is relevant to the current Australian situation, with students choosing commercial RTOs, over lower cost government TAFE courses.

Iloh and Tierney (2014) surveyed 75 for-profit college students and 62 at community college (state run). They found that students would like to attend community college, but found obtaining enrollment information difficult and the prerequisites required daunting. Also there was a perception that community college would take longer and students felt that a for-profit college would provide better hands-on training and result in better job prospects. Students found for-profit college closer, with more flexible class schedules.

These are factors which Australian TAFEs might want to take into account when designing and promoting programs.

References

Iloh, C., & Tierney, W. G. (2014). Understanding For-Profit College and Community College Choice Through Rational Choice. Teachers College Record, 116, 080304.

Your future is Australia's future

The Australian Government is running a TV advertising campaign asking the public to search for "Your future is Australia's future: The facts about higher education". This is the title of a web page, discussing the share of of course fees paid by the federal government, the quality standards from the Tertiary Education Quality and Standards Agency and the HECS student loans scheme. This then links to a "Changes to Higher Education" page, which says "The Australian Government wants to reform our higher education system, opening more pathways, providing more support and offering more choices.". Curiously this does not appear to mention the key aspect of the government's HE reform, which is to allow universities to set their own fees. It will be interesting to see if this advertising campaign will change the views of cross-bench Senators, who up until now have declined to support the government's proposals. However, in my view the proposed reforms and much of the public debate is missing the most important question which needs to be addressed: Will Higher Education Reforms Position Australian Universities to Compete On-line? 

ps: The Your future web page has some technical problems: 65 HTML Errors, a MobileOK Rating of only 19 out of 100 and 24 Accessibility problems.

The graphic for the Your future web page, is similar to that showing two people at Domainname.edu.au.

US States Consider Australian Style Student Loans

The US state of Oregon has introduced legislation for government subsided loans for college students. The bill is called "Pay It Forward" (HB 3472) and has some similarities to  the Australian subsidized "HELP" student loans scheme. Other US states, such as "An Act to reduce the cost of college education for Massachusetts residents" (Bill H.3631, Referred to Massachusetts Joint Committee on Higher Education, 19 August 2013). However, the Oregon bill is not legislation to enact a specific funding scheme, but just to have the state's Higher Education Coordinating Commission formulate the details of a scheme.

Under the Australian scheme, loans only need to be repaid in installments based on the student's income and after it reaches a set level (currently $51,309 Australian dollars a year). This is a relatively low cost scheme to administer as repayments are handled as part of the income tax system. It lessens the worry of debt repayments, as the students know they only have to repay when they have a higher income. But the scheme is not without problems (such as students who leave Australia and never repay the debt). Also the scheme assumes that education leads to higher income. The Australian government has a set of other schemes for quality education and to inform students, but this does not guarantee higher wages for graduates.

Some of the proposals for the Oregon scheme, as described in 'OREGON'S “PAY FORWARD, PAY BACK” PROPOSAL' (by Terrance Adams and Alan Shepard, Connecticut Office of Legislative Management, 6 August 2013), differ from the Australian model and do not look like a good idea to me. In particular, one proposal is for a lower rate of repayment if the student does not graduate. It is not clear why the rate is not based simply on their ability to pay and the amount the course cost. Having lower rate for students who do not graduate will complicate administration and invite manipulation of the system.

One useful way to encourage students to study is to allow multiple exit options. In this way the student does not have to commit to many years of study with the risk that if the do not complete all years they receive no reward. Instead they can be granted a lesser qualification for part completion of the program. However, under the Oregon proposal, it would not be clear if this counted as "graduation". Also there would be the temptation for the student to game the system by withdrawing shortly before completion, moving out of Oregon and using their course credits to graduate elsewhere, and avoiding the higher repayment rate.

Plan to Rate US Colleges and Cap Student Loans Similar to Australia

US President Obama released a "Plan to Make College More Affordable: A Better Bargain for the Middle Class" (White House, 22 August 2013). This envisages publishing performance measures for US Colleges from 2015 and later tie government aid to these ratings. Also it is proposed to cap student loan repayments at 10 percent of monthly income. These measures are similar to some already in place in the Australian higher education system. The USA could learn from Australia's experience.

The Australian Government provides subsidized student loans called "HELP" which only need to be repaid when income reaches a set level (currently $51,309 per year). This is a relatively low cost scheme to administer, but is not without problems (such as students who leave Australia and never repay the debt).

If government is funding education, then it seems reasonable there is a government mandated minimum standard. This system applies in Australia to higher education, with both private and public institutions requiring to meet minimum standards. But a government rating one institution as better than another is more problematic and not done in Australia. Apart from the problem of having a reliable system, it has to be asked what is the purpose of the government rating and if it will be effective.

Australia has the Tertiary Education Quality and Standards Agency (TEQSA), which is a government agency, but relatively free of political interference, with academics setting the standards.

The Australian Government provides the "MyUniversity" website with details of all Australian institutions. This details the qualifications of the staff and how many have awards for teaching, which is relatively uncontroversial.  More at issue are student survey results for each subject area.

I have recently undertaken tertiary teacher training and so am comfortable with the idea of being rated by the students and have designed a course which rates highly. But some of my colleagues have difficulty with the concept and practice of designing courses which meet external standards and are popular with students.

There is the risk of a race to the bottom, with courses which just meet minimum standards and are designed to be easy and therefore popular. But I find that students value a course which challenges them. Also while meeting external standards is a useful discipline for the course designer.

The USA might want to adopt more of the Australian approach to encourage quality higher education. However, problems remain with both systems. One issue is if the information provided about courses actually influences student behavior and if this information is useful in making a decision on what and where to study. As an example, there are swings in different sectors of the economy. If these swings match the length of a course, then the information reported about student's success in the workforce will give the wrong signals to the students.

As an example, Australia has experienced a mining boom over the last few years, with a high demand for skills in that sector. A student looking at the statistics would think  mining is a good area to get into. However that boom is now coming to an end. The student may find there are no jobs by the time they graduate. Or if they are lucky, the end of their course will coincide with the next upswing in mining. One way to counter this is to provide predictions of future employment (which have their own problems). Another solution is to provide courses suitable for a range of jobs.