Privatization of Education in Australia
The Australian educational system consists of the three major “pillars.” The first, the schools sector in which senior secondary educational certificates are issued upon the completion of year 12. The second, the Vocational, Educational, and Training (VET) sectors aimed at providing students with the skills to become “job ready.” Credentials for students graduating from the VET sector can range from certificates, through to diplomas and advanced diplomas. The final pillar is the Higher Education Sector or universities, which awards diplomas, degrees, and advanced degrees.
This entry details the period from 2009–2015 when the Australian Government deregulated the Vocational Education and Training (VET) sector and by doing so, it is argued, enabled opportunistic and unscrupulous providers to take advantage of the large financial sums available by using aggressive and inappropriate marketing techniques. In 2008, the Rudd Government introduced the VET Loan scheme enabling students to apply for a government loan to pay for a VET course. The Australian Government simultaneously allowed private operators to enter the field in competition to public entities (such as TAFE) by deregulating the industry. The Australian government opened up the VET sector to competition in deregulating the sector or more particularly, “contestability” whereby the government’s intention is to introduce private competitors to challenge the public provider to be more “nimble” and achieve greater customer service and efficiencies (Rea 2015). Sahlgren (2014) argues that while there may be benefits to privatization, for it to function well there must be well-designed system incentives to counter the more opportunistic of providers, or as Krueger (1974) calls them, rent-seekers. Businesses who look to rent seek are in effect distorting the market leading to a divergence between the private economics and the social good of the service.
The VET Sector Design and Implementation
VET has a long history starting with the Technical and Further Education (or TAFE) as the government-funded provider of post-secondary vocational education. Since Federation, TAFE and its previous iterations have been the sole provider for all educational and training purposes, except for employers who might provide their own nongovernmental funded training courses to employees. Since the mid-1990s, various Australian governmental policies have seen a move from TAFE to the VET system. Designed in response to cost pressures from TAFE, the VET sector is now seen as encompassing both the public TAFE and the private and community education and training arena (usually private educational providers), and TAFE is now considered as one part of the VET system, albeit a major part. In 2008, the State Victorian Brumby Labor government announced the introduction of the Victorian Training Guarantee. Under this Guarantee, eligible students were able to choose to study with any VET provider, in direct competition to TAFE. Other Australian states followed a similar policy, which saw private providers issuing credentials that were previously the domain of TAFE. Up until the late 2000s, the students of private providers would pay the private organization for its services, and costs were kept under control through the normal supply and demand equation, that is, if services were too expensive students would seek a lower cost provider, such as TAFE. This equation all changed in 2008 when the Australian Federal Government introduced the VET FEE-HELP Scheme as part of the Commonwealth’s Higher Education Loan Program (HELP). Since 1989, the Higher Education Sector had the Higher Education Contribution Scheme (HECS), introduced by the Education Minister John Dawkins as part of the Labor Government reforms to the university sector at that time. All students enrolled in a university place were required to make a part contribution payment to the cost of their education, in the form of a Commonwealth backed loan (HECS). Students with a HECS debt would pay it back in fixed percentage amounts once individual incomes reached a predetermined amount; the current repayment threshold for 2017 is A$54, 869.
The VET FEE-HELP duplicated, to some extent, the HECS system with one important distinction that the government does not set prices for VET courses – service providers (or Registered Training Organisations – RTOs) can charge whatever the market will bear. The student therefore will be required to pay for the full cost of the course through a VET HELP loan from the commonwealth that led to students becoming liable for large financial commitments.
The VET Sector: Analysis of the Financial Implications
Since the introduction of VET FEE-HELP in 2009, loans have exponentially increased each year and stand (as reported by the Department of Education and Training) at $2,925 M at end of year 2015. Relaxed standards as to who could become RTOs under the legislation may have contributed to this increase. Prior to 2012, all courses offered needed to be able to articulate into the Higher Education Scheme through transfer of credits and therefore universities have to recognize the course as having sufficient merit and quality to be acceptable for credit or a pathway up to university. This naturally set the bar high on the courses and the quality of service provider. Under the conservative Abbott government, this requirement was removed and the standards for entry for registration as a training provider greatly lowered. Reduced barriers to entry led to a 570% increase in RTOs between 2009 and 2015 as they entered the market and started competing for students. Rather than a demand-driven market from the students, it became a demand-driven market created by the RTOs, which saw the number of students accessing VET FEE-HELP (VFH) increase from 5,262 in 2009 to 272, 026 in 2015. Indeed, the commitment per student to VFH loans also increased, from an average loan per student of $4, 861 in 2009 to $15, 114 in 2015. Increased student numbers, increasing student debt, and increasing RTOs offering training courses led to high financial commitment from the Commonwealth as these financial benefits accrued to the RTOs. The total commitments from the Commonwealth to the educational providers increased from $25.6 m in 2009 to $2.9 billion in 2015.
Introducing the VET FEE-HELP scheme to private providers and allowing them access to government funding has led to a demand-driven increase in educational services from the perspective of the private operator using increasingly aggressive marketing tactics to attract students. Due to the large financial returns on offer, the market became attractive to the more opportunistic organizations not particularly concerned with student educational outcomes and more concerned with the business bottom line. This led to some dubious marketing practices and business behavior, primarily due to the remuneration structure of the sales staff of the VET providers. The training colleges hire “brokers” as an intermediary between the colleges and the salespeople (whose sole function is to market the courses and provide the salespeople to sign clients to the course). RTO providers pay brokers reported sums of up to $5000 per student who in turn pay the salespeople up to $1000 for each student signed (Bachelard et al. 2015). Brokers paid on commission have no real incentive to accurately represent the courses or provide advice about which courses would suit or not suit a client or even be concerned if a student has the ability to complete a course. In a government inquiry into the VET scheme, Speech Pathology Australia cited one provider who was advertising a Certificate IV in an allied health course implying that it is a “speech pathology” course without making any reference that in no way would the student be able to practice as a “speech pathologist” on completing the course (Committee 2015).
Rent-Seeking Behavior and Marketing Practices
The marketing techniques of VET colleges to attract and retain students has been concerning. There is evidence of high-pressure sales and marketing techniques of VET colleges in order to attract and retain students. Examples include targeting disadvantaged clients, making untrue promises of “free” equipment and other financial inducements, making false and misleading representations that the course is “free” and that employment opportunities are abundant. Sales people specifically target those living in public housing and non-English speakers. They would set up stalls outside welfare offices in order to approach recipients looking for educational opportunities, target vulnerable migrants and the elderly. Prospective students who were elderly were encouraged to look at the loan as one they would never have to pay back as it would be highly unlikely pensioners would be earning above the required amount to have to pay it back in the coming years. Potential students would be offered a free computer/iPad and cash incentives, having little understanding that they were agreeing to pay back a loan in order to fund the course. Examples abound of salespeople signing clients up to inappropriate courses; The Redfern Legal Centre (in the Government inquiry) cited the example of a client who wanted to do hairdressing but was instead enrolled into a course on how to manage a hairdressing salon (Committee 2015, p. 38). Further evidence cited details how “Inclusion Australia” an advocacy group for people with disabilities reported that RTO salespeople were outside their premises approaching clients as they tried to enter the disability service.
Quality control issues also became apparent – highlighted by the lack of pedagogy taking place and the short amount of time allocated for the course. For example, one college was reported to be offering an advanced diploma in only 2 weeks whereas such a qualification from TAFE (with the volume of teaching and learning required) should be about 2 years. In addition, courses were excessively expensive, for example, a Double Diploma of Business and Management from one provider was costed at $23,250, whereas a similar course from TAFE was only $6,800.
The Australian Chamber of Commerce and Industry has also identified that providers are basing their course offerings on gaining access to government funding and ignoring the needs of students in regards to training for employment. For example, there is an abundance of business courses as they attract significant government funding, while other courses (such as carpentry or plumbing) are not offered due to the low profitability of those deliveries. The Australian Council of Trade Unions has identified courses in hypnotherapy, aromatherapy, and Christian proselytizing as courses that have been given priority due to government funding and cost-effectiveness of delivery (ACTU submission 38, Committee 2015).
A key concern in regards to quality is that graduates are coming out of these courses with insufficient knowledge to be able to be job ready. Evidence was provided in the government inquiry from former tutors that students were continually tested and retested until they passed. Pressure was put on tutors to pass a student even though they did not meet the requisites for a pass grade, or to ignore clearly plagiarized work and mark it as if it was the student’s own work. Public safety issues also present itself if students are not adequately prepared for a job, for example, a tradesman unable to erect scaffolding or being unable to operate equipment. Ms. Sue Bond Head of the Guild Pharmacy Academy was asked in the inquiry about her concerns about the level of training and cited a pharmacist who had rang her about a pharmacy assistant who has a certificate III but did not know what an analgesic was. The Australian Skills Quality Authority (ASQA) who hold dual responsibility for vetting qualified applicants to deliver a VET course regulates all RTOs, since 2011, and the accreditation of said courses delivered. However, a department of Industry report from 2014 found that a significant portion of RTO providers (40%) did not have formal pedagogic qualifications. Usually educators held a Certificate IV in Training and Assessment (the qualification needed to teach at the VET level). Additionally, it was found that there are poor enforcement activities by the regulators against RTOs who were seen to be breaching the regulations; PriceWaterhouseCoopers found that approximately 79% of RTOs were not compliant with the regulations – however they contributed this to misunderstanding of the regulations rather than malice.
It became obvious to the service providers in the system that large financial rewards were possible through capturing part of the market. Intense competition for the growing student demand saw unscrupulous operators enter the market to access the large financial benefits that would flow and promote their services to what may be described as unsophisticated and uninformed consumers. The large increase in providers, from 39 providers in 2009 to 261 in 2015, had come about due to the market dynamics making the system attractive to entrepreneurs. This increase has seen intense competition for students evidenced in consumers targeted in aggressive marketing campaigns as mentioned previously.
Aggressive marketing techniques led the Australian government to ban, from the 1st April 2015, all private providers from offering any financial inducements to sign up such as free laptops or cash and to stop some of the more aggressive marketing techniques like going to nursing homes, or purporting that the courses are “free” or “government-funded.” The Assistant Minister for Education and Training, Simon Birmingham, released a statement with further measures to stop unscrupulous marketing such as stopping the more insidious marketing practices, stopping the practice of using “brokers” to sign students, and making it easier for students to cancel debt if they have been signed up in an inappropriate manner (Birmingham 2015). These features have had a significant effect in ensuing year. VET loans for 2016 decreased from $2.92 billion to $1.47 billion and student numbers decreased by 24% from 2015 numbers.
Since the 1st January 2017, VET FEE-HELP has ceased and been replaced by “VET Student Loans.” Students are now required, by legislation, to be fully informed of all their financial obligations and making it clear that they are entering a VET loan with repayment obligations. The website “Study Assist” has been setup to provide information to all students into how VET loans operate and provide information to students to make informed judgments as to the level of debt they will incur, as well as the qualifications to enter a particular job, and expected course length. Enshrined in the legislation is the means to ensuring that student debt is in-line with the course duration and rigor, and ensuring that providers assess the capabilities of students to undertake the course to completion and provide evidence that the assessment has taken place. The legislation also makes it easier to remove debt that has been placed in error or by false representations, and ensuring that all providers are financially stable and delivering courses to a high level of competency.
While it is too early to ascertain the effects on private colleges and student achievement at the time of writing (2017), already there are reports that registration requests from new colleges are declining significantly. Just before the new standards took place, there were many requests for registration from colleges believing erroneously that they were assessable under the old regime. In January 2017, of the 18 applications assessed, one was rejected, with the remainder asked for further clarifying details from the regulators. Of those 17 applications, 11 withdrew and the 6 remaining have not submitted any further details.
The VET Scheme Loan and the failures of the program have highlighted the difficulties that governments face in deregulating public services into the private sphere. Government failure is a very real possibility particularly if the design of the program is conducive to attract rent seekers and unscrupulous operators are prepared to take advantage of lack of policy standards and lack of over-sight. Business has demonstrated several times that it behaves poorly in response to deregulation. The reasons for that are many; Fassin (2005) points to a decline in business ethics exhibited in unfair practice, unethical behavior and abuse of power, unfair competition, and lack of respect for agreements.
Governments will always seek to privatize/deregulate services either because of a belief that deregulation provides cost savings to the budget or that it provides better outcomes to the community, or both. The danger is in not designing the system so that it takes the form of opportunistic deregulation with all the inherent flaws that flow from that particular model. In fact, the Australian Government appears to have learned that particular lesson with the drafting of new legislation that attempts to write policy to stop rent-seeking behavior and protect the community. The Australian government had intended introducing the VET Fee Help model into the university sector, following the election of the conservative Abbott government, whereby private operators would be able to offer degrees to students and the current higher education fee help scheme would be deregulated. This policy was abandoned in 2016 due, in part, to the evidence presented of the effect such a policy had on the VET sector, and in part to the opposition parties refusing to pass the legislation in the Senate.
The way forward for the Australian educational system is continuing vigilance of proposed governmental policy and legislation and to ensure that deregulation policies are fully vetted and further strengthened to avoid a repeat of history.
- Bachelard M, Cook H, Knott M (2015) Vocational education, the biggest get-rich quick scheme in Australia. Retrieved from http://www.smh.com.au/national/vocational-education-the-biggest-getrich-quick-scheme-in-australia-20150916-gjnqwe.html
- Birmingham S (2015) Government targets VET FEE – HELP scammers [Press release]. Retrieved from https://ministers.education.gov.au/birmingham/government-targets-vet-fee-help-scammers
- Committee (2015) Getting our money’s worth: the operation and funding of private vocational education and training (VET) providers in Australia. Retrieved from http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_Employment/vocationaled/Final_Report
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