April 30, 2015

The Short and Troubled History of VET FEE-HELP

By Pat Forward

ET FEE-HELP is an income contingent loan scheme, introduced into the VET sector in 2008 as part of the Commonwealth’s Higher Education Loan Program (HELP). An income contingent loan scheme – the Higher Education Contribution Scheme (HECS) - was first introduced into Australia’s Higher Education sector under Education Minister John Dawkins in 1989. HECS has become HECS HELP in the Higher Education sector, and HECS-HELP, FEE-HELP and VET FEE-HELP are all administered under the Higher Education Loan Program (HELP).

Since its introduction in 2008, Commonwealth Government funding for VET FEE-HELP has grown at an extraordinary rate – from $25m in 2009 to about $1.3b in 2014 (see Graph 1) As a result, student indebtedness has also increased.HECS-HELP is available for students in Higher Education who are eligible for a government subsidised, also known as a Commonwealth Supported Place (CSP). FEE-HELP and VET FEE-HELP are loan schemes available for students in Higher Education (FEE-HELP) and VET (VET FEE-HELP) who are paying the full cost of their courses. VET FEE-HELP was extended, in 2010 to courses in VET which were government subsidised, and the mandatory loan fee paid by all FEE-HELP students (now 25 per cent of the cost of the loan) was removed for those in subsidised places. Undergraduate students who have are eligible for a CSP generally pay much less through their HECS HELP loans, than either category of FEE-HELP student, although elements of the Abbott Government’s proposed radical changes to higher education could change this.

There are some similarities between HECS-HELP, FEE-HELP and VET FEE-HELP, but there are some crucial differences. Because all HELP loans are income contingent loans, then repayments are made through the Tax Office when an individual’s income reaches a certain threshold. That threshold is currently $53,345. The philosophy behind the schemes is the same. The argument put by governments is that individuals receive some benefit, in the form of increased earnings throughout their lives as a result of completing a qualification. Therefore, individuals should share the cost of their education with the state. In essence however, governments are looking for ways to shift the funding of education from themselves and onto students. This has significant implications for the community, in particular those sections of the community who are least able to afford the costs of education, and who are often debt averse.

There are some crucial differences between the sectors in their approaches to their income contingent loans. In Higher Education, students eligible for a Commonwealth Supported Place (CSP) take out a HECS-HELP loan from the Commonwealth Government to pay for part of the cost of their qualification. Costs of fees for degrees are currently regulated, and the government pays for part of the cost of the qualification, with the student paying the remainder, through HECS-HELP if they choose. Currently, university students pay on average 40 per cent of the cost of their degree, and they start to repay that loan, through their tax when their income reaches the threshold. In VET, fees for non-government subsidised courses are completely deregulated – that is, a provider can charge whatever they want for a VET qualification, and a student must therefore borrow the full cost as a VET FEE-HELP loan. In addition, students who take out a VET FEE HELP loan for a qualification which receives no government subsidy must pay a 25 per cent administration fee on top of the loan. This administration fee is waived where the qualification receives some government subsidy. Many of the radical changes that the Abbott Government is trying to make to the Higher Education sector would draw it into line with the current arrangements in the VET sector, and the proposal to uncap the limit on the amount of debt that students can take out throughout their lives (currently $97,728 for most students and $122,162 for medicine, dentistry and veterinary science students) would remove the only constraint on the amount that private providers are charging students.

When VET FEE-HELP was first introduced into the sector in 2008, there were restrictions on the courses that could be eligible and which organisations could offer the loan scheme. The 2008 Guidelines for VET FEE-HELP required eligible qualifications to be VET Diploma and Advanced Diploma courses which attracted no government subsidy – ie – were full fee for service. In addition, the VET Provider had to have specified ‘credit transfer’ arrangements with a Higher Education provider. Providers had to be body corporates, unless they were organisations established under government vocational education and training legislation (ie TAFEs). They were also required to have education as their principal purpose, and provide tuition assurance for all their eligible courses.

These guidelines, as Graph 1 above shows, meant that initial take-up of VET FEE-HELP was low. In response, in July 2009 amendments to the guidelines extended VET FEE-HELP to courses which were partially government subsidised so long as the VET provider was in a “reform” state or territory. A designated reform state was one which had agreed to open its VET funding to the private sector. At this time, the only eligible “reform” state was Victoria, which had introduced market reforms of its VET system in 2008 – the Victorian Training Guarantee. Following their sign-up to the 2012 National Agreement on Skills and Workforce Development (NASWD) all states effectively met the conditions which allowed their providers to be VET FEE-HELP eligible.

In other words, the introduction of VET FEE-HELP was the opening of a significant new source of Commonwealth funding for higher level VET qualifications, with the final “burden” of this debt being transferred fully to individual students into the future. It started the process of the states and territories shifting their responsibility for the funding and provision of higher level VET qualifications from themselves, temporarily onto the Commonwealth, but finally onto individuals. In a number of states, this is exactly what has occurred, and it was a powerful and lucrative incentive for the states and territories to introduce market reforms of their VET systems.

As part of the 2009 extension of access to VET FEE-HELP in Victoria, the Commonwealth commissioned a review of the scheme. This was largely because there was a concern about the low take-up rate of VET FEE HELP. The review found that RTOs were experiencing “significant issues” with the scheme, including issues associated with the application process and meeting financial viability, principal purpose, credit transfer and tuition assurance requirements. These issues, according to the reviewers[1] were impeding the take-up of the scheme by students. Some stakeholders, the reviewers argued, were concerned that many of the requirements which RTOs had to meet in order to become eligible were too harsh, or inappropriate for the VET sector. In truth, some of these requirements had been put in place specifically to protect students and public money, and acted as additional quality assurance measures for this purpose.

A good example of this was the requirement for an approved VET FEE-HELP provider to have a credit transfer arrangement in place with a higher education provider for their VET FEE HELP courses. Some RTOs argued that this was inequitable, that it reduced opportunities for VET students and effectively that it set the bar too high. In reality, it meant that the course had to be of sufficient substance and merit that other providers, including universities recognised it for purposes of pathways into higher level qualifications, and it meant that such a pathway actually existed - even if students chose not to use it.

A number of revisions in 2012 were necessitated by the introduction of the National VET Regulator Act and the requirements of the National Partnership Agreement on Skills Reform (NPASR). All obligations concerning credit transfer arrangements in order to obtain VET FEE-HELP were removed. The concept of a ‘Reform State or Territory’ was replaced by that of an ‘eligible State or Territory’.

The revisions of 2012 made explicit the connection between the introduction of market reforms through the 2012 NASWD and the NPASR, and the introduction of VET FEE-HELP. In fact, the weakening of the conditions attached to becoming a VET FEE-HELP provider, made it much easier for many more largely private for-profit providers to become eligible, and as the data will show, resulted in a rapid expansion of the scheme after 2012.

VET FEE-HELP has become a lucrative source of income for private for-profit providers in the VET sector. More than 75 per cent of VET FEE-HELP funding goes to private for-profit providers, as depicted in Graph 2. The scheme has grown exponentially, as more and more private providers market their courses as “no up-front fees”, offer inducements to students such as free IPads and computers, or even overseas trips.

It is the significant amounts of funding being allocated through VET FEE-HELP, when combined with the public VET funding being allocated contestably (around 42 per cent of recurrent VET funds) which contributes to the profit margins which private for-profit providers are making out of the VET sector. This is one reason why the private sector is growing as it is in VET.

VET FEE-HELP was a powerful inducement for states and territories to sign up to the 2012 NASWD, and NPASR. It has effectively encouraged a number of states and territories to remove public funding of higher level VET qualifications. Unless the Commonwealth Government acts urgently, we are consigning a generation of young people in Australia to substantial debts for qualifications which could be completely worthless.

Finally, there is another crucial difference between HECS and VET FEE-HELP that should be highlighted here. HECS was introduced in 1989 on the recommendation of a major national public inquiry into higher education financing, which was chaired by Neville Wran. People were given several months to respond to the recommendations, and there was vigorous debate. In contrast, there has been no national public inquiry into vocational education financing since the Kangan report in 1974 and VET FEE-HELP was introduced and then radically extended, without any public inquiry.

VET FEE-HELP is a rapidly growing source of income for the private for-profit VET sector in Australia. More than 75 per cent of the $1.3 billion expended on the scheme last year went to the private sector. This represents a significant potential waste of public funds – but more importantly, it represents a growing source of student debt in a climate where there is significant uncertainty about the quality of qualifications students are receiving.

Frequently asked questions:

What is the difference between HECS-HELP; FEE-HELP and VET FEE-HELP?

HECS-HELP is only available to eligible students enrolled in a Commonwealth support place studying a higher education qualification. FEE-HELP is only available to eligible fee paying students undertaking a higher education award course. Irrespective of whether a student receives a loan under FEE-HELP or VET FEE-HELP, one FEE-HELP limit applies. VET FEE-HELP assistance is generally available to eligible full fee paying students undertaking higher level VET qualifications (diploma, advanced diploma, graduate certificate and graduate diploma courses). Irrespective of whether a student receives a loan under VET FEE-HELP or FEE-HELP, one FEE-HELP limit applies.

What are the lifetime borrowing limits?

The FEE-HELP limit in 2015 is $122,162 for medicine, dentistry and veterinary science students (as defined in HESA) and $97,728 for all other students. The FEE-HELP limit is indexed on 1 January each year. The FEE-HELP limit is the total amount available to an eligible person under both the FEE-HELP scheme and the VET FEE-HELP scheme. This means that any amount borrowed under either FEE-HELP or VET FEE-HELP will reduce your FEE-HELP balance until you have reached the FEE-HELP limit. Once you have reached the FEE-HELP limit (the indexed amount for the relevant year), you are no longer eligible to use FEE-HELP to pay your tuition fees, regardless of whether you have fully or partially repaid your loan. There is no limit to the amount a student can borrow under HECS-HELP