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Vocational education delivers a lesson in market failure

The Sydney Morning Herald (online), 20 December 2015 - Comment. For reasons that have little to do with the noble goals of education, and a lot to do with filthy lucre and the chance to get rich quick, vocational education has become the fastest growing industry in the land.

It should be good news, that Commonwealth subsidies to Australians enrolling in vocational education courses increased more than five-fold between 2012 and 2014, and then threefold again in the past year.

The $4 billion plus dollars in subsidies represent countless thousands of students seeking to acquire new or additional industry-specific qualifications which will improve their job prospects and strengthen their futures. That can only be good for them, and good for the nation, right? 

If only. In reality the blow-out in VET FEE-HELP, the HECS-style loan scheme for vocational students, is nothing less than a scandal of national proportions.


The winners are the unscrupulous shonks and shysters who operate some of the private colleges and their sales force operating door to door or from hothouse call centres, pocketing the federal government subsidy that comes from recruiting people for courses and study loans.

The losers are the aspiring job seekers and the vulnerable poor, often uneducated, mentally disabled or living in Aboriginal communities, who have been bribed with free laptops to sign up for useless online diplomas at a cost of up to $20,000 each and a lifetime debt sentence. 

Taxpayers, too, are victims of this failed scheme. Tax dollars which might otherwise be spent on genuine, worthy education initiatives are funding dodgy courses instead. A large proportion of the government loans to "students" will never be repaid. Only about one in five VET FEE-HELP students graduate. 

The casualties are starting to mount. The Australian Competition and Consumer Commission is taking legal action against four training companies including the Phoenix Institute and Acquire Learning, both of which are accused in the Federal Court of false or misleading behaviour and unconscionable conduct over the sale of online courses to vulnerable job seekers. Phoenix is meanwhile challenging the Education Department in the Federal Court for deferring payments to it. 

The sector's regulator, the Australian Skills Quality Agency, has threatened to deregister one of the country's largest private colleges, the Australian Institute of Professional Education, for allegedly signing up new students without their knowledge and consent. And Vocation Limited, briefly a stockmarket darling with 180 staff and more than 12,000 students, has been closed down by an administrator. Its share price crashed, $700 million in market value was lost and it ran out of funds after two of its colleges were stripped of registration and government funding due to inadequate course quality.

Several more training providers are under investigation. It's clear the sheer size and rapid growth of the industry has overwhelmed the regulators. True enough, as vocational education and skills minister said in Parliament, the problems stemmed from Labor's failure to put in place adequate safeguards in 2012 when it extended HECS-style loans to vocational education and Commonwealth funding to diploma courses.

With no cap on the cost of the scheme (because it was assumed the students would pay back their loans) the consequences are not, with hindsight, surprising.

But the government has moved too slowly to hit the brakes on this runaway train. Reforms in March banned the use of inducements such as free laptops to sign up students and banned training providers or their agents from misleading students into thinking they wouldn't need to pay the VET FEE-HELP loan back.

A bill passed in the last parliamentary sitting week, to take effect on January 1, allows students a two day cooling off period, requires providers to establish minimum course entry standards. It makes it easier for students to waive their debt and for the regulators to apply sanctions to providers and brokers who do the wrong thing.

But more substantial reforms to stop the rorting such as capping fees and loans have been put off until 2017. It's hardly comforting that the government has frozen VET FEE-HELP lending to this year's $4 billion level.

The vocational education scandal is a reminder that care is needed in applying the Harper review's proposal to extend the principles of competition policy in the human services realms of health, education and community services. The vocational education debacle shows that human services and the profit motive are often a difficult combination. With muffled price signals, under-resourced regulators, inadequate sanctions and flawed legislation, the track to market failure can be fast indeed.


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