The VET Student Loans Scheme: Is it a good model?
15 February 2017, by Mark Warburton
This paper examines some aspects of the policy and implementation of the new VET Student Loans scheme. The VET Student Loans scheme was rushed though the Parliament on a wave of public outrage about the rorting of VET FEE-HELP. The old scheme was voted out with little understanding of what the new one might bring in.
The scheme’s fundamental purpose is to provide a benefit to students. It seeks to make access to vocational education and training (VET) affordable by helping students to pay their tuition fees. In doing so, it contributes to the financial resources of VET providers and the provision and development of VET in Australia.
The aspects of policy and implementation that this paper examines are primarily those related to the payment of tuition fees. It considers whether these arrangements are simple, fair and efficient for students and providers. While the prime motivation for a new scheme was to ensure that it was not abused by disreputable providers, regulatory aspects of the scheme are examined only to the extent they are relevant to the paper’s main purpose.
The VET Student Loans scheme gives the Secretary of the Department of Education and Training (DET) a very high level of discretion in administrative decision-making on the ground that this will ensure the integrity of the scheme. The priority afforded to Secretarial discretion has compromised other aspects of the scheme and resulted in it having features that are atypical for a national system of benefits for citizens. An assessment of the extent to which the current VET Students Loans scheme meets a range of desirable features for such a scheme is provided in the table below.
It is not a scheme in which the benefits are closely defined and in which beneficiaries, in this case students, have rights. It doesn’t ensure that any student has any part of their tuition fees paid for them through the scheme. Of course, the scheme will be used to pay the tuition fees of many students. This will occur as a discretionary act of executive government, rather than as an entitlement to assistance with vocational education and training.
The participation of private vocational education and training (VET) providers and, after 7 years, the participation of public VET providers is discretionary and not subject to merits review or consideration by the Parliament. The Secretary has substantial power to control the operations of all VET providers, their approved courses and academic curriculum.
The scheme doesn’t prevent upfront barriers to students undertaking study. This is not an objective of the VET Student Loans scheme. There are not upper limits on the tuition fees which a provider may charge, but there are maximum loan amounts which are payable for a course under the scheme. There is already one provider offering a private loan to cover ‘gap’ fees.
Students are advised by their provider after they enrol of the amount of tuition fees for their course to be ‘covered’ by a VET Student Loan and how much of those tuition fees the student must pay themselves. This advice is provided in the VET Student Loan Statement of Covered Fees. The provider cannot require ‘covered’ fees to be paid by a student.
The arrangements may require VET providers to give a student their VET Student Loan Statement of Covered Fees before they know if the Secretary has approved a loan for the student or the amount of loan approved. Providers also must give a student their first VET Student Loan fee notice (their first invoice) detailing their covered fees for the first part of their course at least 14 days prior to the last day available to the student to apply for a VET Student Loan.
The process of approving loans and notifying students of the decision and their appeal rights is quite unclear, in part because there has been little time for DET to put the required processes in place or to modify and update its IT systems for the new scheme. Even if these matters were in order, under the scheme’s legislative provisions, approval of a loan is no guarantee that a student will have any amount of tuition fees paid using the loan.
How much of a student’s tuition fee may be paid depends on the amount the provider is prepared to advise can be ‘covered’ by the scheme and it can be less than the maximum loan amount payable for their course. It is not a decision that the student can appeal.
There is no guarantee that the Secretary will pay a student’s covered fees, even if the student is eligible for a VET Student Loan and the loan has been approved. The Act does not include any right to appeal a decision not to pay a student’s tuition fees. A student may not care about such a decision because the Act prevents their VET provider from requiring them to pay any ‘covered’ tuition fees, irrespective of whether the Secretary pays those fees. It is the VET provider that will be adversely affected by a decision not to pay the student’s tuition fees.
There are new arrangements concerning Tax File Numbers (TFN). If a student who has been approved for a loan does not supply their TFN to DET by the census day, the VET provider will not be paid for that fee period. If students do not apply for a TFN in a timely manner, there is a delay in issuing the TFN by the ATO or a student simply does not supply their TFN by the census day, the provider will suffer a financial loss even though it is not their fault. There may be significant problems in the proposed implementation of these new TFN arrangements.
VET Student Loan debts are incurred on the day the Secretary pays the loan amount, not the census day as with previous loan schemes. There may be problems in the proposed implementation of this change, primarily because there has been little time for DET to put new processes in place or to modify and update its IT systems.
VET providers are being required to issue Commonwealth Assistance Notices to advise students about their debts and to report those debt amounts to DET as though they occurred on the census day. This occurs prior to the Secretary paying the loan and the student incurring the debt. Despite this, Chief Financial Officers of VET providers are being asked to certify the accuracy of reported data. This may be the information being passed to the ATO, making it difficult for the ATO to process these debts in a manner fully consistent with the law.
The Secretary’s power to impose conditions on approved VET providers includes the power to impose a limit on the total loan amount that can be paid to a provider. These limits can be imposed in a variety of ways, for example they might apply for a particular period or apply to particular approved courses in a particular period. Providers have little choice but to accept any limit on the total amount of loans available to their students and to ration this amount among students.
The scheme’s legislative provisions do not require the Secretary to make provider loan limits publicly available. Nothing prevents a provider that has been approved to offer VET Student Loans from enrolling domestic students on the basis that none of their tuition fees are covered. The student has no right to appeal the provider’s decision. Conversely, nothing explicitly prevents the Secretary from paying tuition fees which are not ‘covered’.
The scheme’s potential financial contribution to the VET sector is difficult to determine. The Rules allow up to $2.1 billion to be spent each year. The Secretary is not required to allocate this amount. In December 2016, it was estimated that $1.6 billion would be spent in 2016 under the previous VET FEE-HELP scheme, down from $2.9 billion in 2015 following efforts to tighten the administration of that scheme. As less than half of the courses eligible for VET FEE-HELP have been approved for VET Student Loans, only around $800 million may actually be lent under the new scheme.
In short, the VET Student Loans scheme is under-developed and its implementation has been rushed. Many individual provisions sound reasonable, but when put together they do not form a coherent scheme which is simple, fair and efficient for students and providers. There are errors in the Rules, such as the accidental abolition of all loan fees, and poor drafting of requirements about financial viability and the academic suitability of students. DET has not been given sufficient time to develop or implement the scheme. It has not had time to develop the required processes and IT systems in consultation with VET providers.
Whether the scheme produces consistent and certain outcomes for students and providers into the future will depend on decisions taken by Government, the Secretary of DET and VET providers. Some substantial changes to the scheme are likely to be required. Until this occurs, there will be problems administering the scheme and VET providers and students will be confused and have difficulties understanding and using it.
Mark Warburton is Honorary Senior Fellow of the LH Martin Institute and a former Principal Analyst for Universities Australia.
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