Mitchell Institute Reports & National VET Funding

This week has seen the release of the Mitchell Institute’s paper, “Feasibility and design of a tertiary education entitlement in Australia”, written by Dr Timothy Higgins and Prof Bruce Chapman.  It expands on the earlier report, “Financing tertiary education in Australia – the reform imperative and rethinking student entitlements”, by Prof Peter Noonan and Sarah Pilcher.  These reports follow up on the issues raised in the Reform of the Federation White Paper released last year.

My comments on these papers:

These reports come in the middle of a significant public and parliamentary debate about the current state of vocational education and training in Australia.  Only last week we saw the first public hearing of the Senate Committee Inquiry into the operation, regulation and funding of private vocational education and training (VET) providers in Australia. Many submissions cover the practices that have emerged in the sector that are causing serious concern and have been the subject of extensive media reporting, ranging from the inefficient to the downright shonky.

I am happy to acknowledge that many of the submissions also outline their experience with efficient, ethical, quality-focussed private providers but they make the point that both the public providers (State-based TAFEs) and these private providers are being hollowed out by the proliferation of the shonky and unethical.

With this increasing dilemma in mind, in an opinion piece published in The Australian Online I made the observation on the Federation White Paper:

“Getting the balance right, however, is not only about the funding mix between different levels of government and between government and students and employers. It must also address the interaction between funding sources and the impact on the quality and relevance of the training provided.”

The Noonan/Pilcher paper, released in February this year, proposed “one foundational aspect of that matrix” should be “a fairer and simpler financing framework, across the different levels of government and tertiary education, that supports a tertiary education student entitlement for young Australians.” The proposal would see an entitlement for Australians aged between 18-24 and would be composed of a combination of public subsidies (by State/Territory and/or Commonwealth governments) and a student contribution through an income contingent loan.

The report considers three funding models and indicates a preference for the third option which separates responsibility between the levels of government based on the level of qualification with the Commonwealth assuming responsibility for all sub-degree and degree level qualifications regardless of which sector they are delivered in.  The States and Territories would assume responsibility for everything else up to Certificate IV level qualification.  However, it also proposes that the Commonwealth make income contingent loans available for all qualification above (and including) Certificate III level.

Echoing the concerns I have expressed about the White Paper proposals, the Noonan/Pilcher report goes on the outline ten specific factors that would need to be considered in setting public subsidies. These factors are just as relevant to the provision of income contingent loans as a complementary avenue of funding, particularly as many students accessing these loans are increasingly enrolled in training that does not carry a government subsidy.

The Higgins/Chapman report explores the potential cost of the extension of income contingent loans to Certificate III and IV level courses based on the measurement of the subsidy ratios that would be created given the lower graduating incomes(indeed often lifetime earnings of graduates, particularly women).

The report specifically outlines a range of risks in this model which include the “potential for intentional income manipulation in order to avoid repayments, generous loan conditions that might influence student choices and/or course providers charging excessive fees and providing poor education services”.

There can be no doubt that significant public media reporting, findings of the national regulator (ASQA) and the Victorian regulator (VRQA) give enough evidence of significant distortion of training provision as recruiters and providers manipulate student choices based on funding options with little if any regard for student capacity, course appropriateness or job market relevance.

It is this behaviour that has seen so many examples of students with very large VET FEE-HELP debts with poor quality qualifications not well-regarded in the industry sector or, even worse, no qualification at all. 

The findings of both the House of Representatives and the Senate inquiries into TAFE have covered these issues.  The current Senate inquiry into the private VET sector will add to this body of evidence.  It would be well supported by the proposed Audit Commission review which is listed for consideration in the proposed work plan for the commission for the second half of 2015.

While the two Mitchell Institute reports are valuable and important to the national discussion of the VET sector I do not believe that it is wise to further such considerations without a full and evidence-based review of the current state of use of VET FEE-HELP.  Given its massive growth over recent years, in particular by the private sector, it should not be extended further without this level of rigour in its review.

Both Mitchell Institute reviews envisage a model where government subsidy comprises part of the funding model and it is true on evidence to date that such an arrangement, with a tie to course cost controls, can act as a break on unsustainable growth in the use of ICLs.  However, it appears that a significant number of providers have bypassed this by moving into the full fee paying space where it is clear that course costs have skyrocketed and the evidence would appear to prove that the students in this market are not price sensitive as they are not well-informed on the value of the course, the reality of the debt they are undertaking or the alternatives available from the “competition”.

This is one of the reasons that Labor believes that a strong and dominant public provider is essential in the sector to provide the benchmark for quality and cost and why we have announced policy to provide a guarantee of funding to the TAFE sector in government.  Although there is concern about the increased cost of TAFE courses in various states, they still provide an important comparison point that would not be available if public provision was not available in particular regions or for particular industry sectors.  Many of the submissions to the Senate inquiry have used examples of exorbitant costs being charged in the private sector in comparison to TAFE courses.

It is also most important that a better consideration of the impacts of funding mechanisms on the quality of VET provision occurs before decisions are made on complete restructuring of the arrangements in this sector.  Federal government changes over recent months to standards and regulation are welcome but a more sophisticated analysis of the market is necessary and must consider the movement between government and non-government subsidised training that can result from the decision to move more funding responsibility to the student.

Whilst taxpayer funding of subsidies of all types in the sector is critical for ensuring the outcomes of training match both the individual’s aspirations and the national skill needs, I would argue there is an equal responsibility on government to ensure students undertaking full fee-paying options using both upfront payments and income contingent loans are also able to meet their aspirations.  This part of the market also has a direct impact on the national skills task.

The VET market is large, complex and critically important but sadly the public coverage of its opportunities and challenges is most often simplistic and fails to identify the pivotal role that the sector plays in participation, productivity and innovation in our economy.  These two reports from the Mitchell Institute are welcome and important contributions to the debate.