House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Education and Training, Senator the Hon Simon Birmingham)

OUTLINE

Overview of the Bill

Vocational education and training (VET) is central to Australia's economic growth, business opportunities and employment outcomes for students. Income contingent loans support Australians to access higher level VET qualifications.

Although there are many benefits to income contingent loans, it is clear the VET FEE-HELP loan scheme needs urgent reform. Following the expansion of the scheme in 2012, the scheme has experienced unsustainable growth, unscrupulous provider behaviour and poor student outcomes. It has left many students with large debts and in some cases, little to no training outcomes. Left unchanged, these policy settings and behaviours will continue to damage the reputation of Australia's quality VET sector.

The purpose of the VET Student Loans Bill 2016 (the Bill) is to replace the VET FEE-HELP loan scheme from 1 January 2017 and introduce a vastly improved student loan program for vocational education and training. The Bill forms part of a package of legislation. The other Bills in the package are the VET Student Loans (Consequential Amendments and Transitional Provisions) Bill 2016 (Consequential and Transitional Bill) and the VET Student Loans (Charges) Bill 2016 (Charges Bill).

The Bill will introduce a new student loans program that will include a range of measures to protect students and taxpayers and the reputation of vocational education and training in Australia. It will improve affordability, maximise employment outcomes for students, prioritise loans to skills needs and ensure fiscal sustainability for the Commonwealth. It does this by:

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linking loans to courses that meet industry needs and skills shortages and improving the quality of the course delivery by only enabling providers to subcontract training to other approved course providers or higher education providers;

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introducing loan caps for eligible courses with the initial loan caps to be $5000, $10,000 and $15,000 with the ability of the Minister to exempt courses with high delivery costs;

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strengthening compliance, governance and payment arrangements including by triggering relevant regulatory powers from the Regulatory Powers (Standard Provisions) Act 2014. The Bill will enable the Commonwealth to immediately suspend a provider in urgent circumstances and also withhold loan amount payments to providers if it is suspected on reasonable grounds the provider is not complying with the Bill;

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expanding on the existing student protections by banning brokers or agents from engaging or recruiting students in relation to loans, prohibiting contact with students regarding the availability of loans unless the student has expressly consented to contact by the particular provider and broadening the circumstances for which student loans may be re-credited;

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raising the bar for entry by providers to the program to ensure providers have robust governance and management arrangements and maintain acceptable student outcomes and industry links (by way of example);

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introducing an application fee for bodies to apply to become approved course providers and, through the accompanying Charges Bill, imposing an annual levy on providers;

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requiring all existing VET FEE-HELP providers to have to apply to be approved under the new program. The Consequential and Transitional Bill will provide for some existing approved VET FEE-HELP providers (such as TAFEs) to be exempt from this re-application process, however all providers, including public providers, will need to meet the higher quality benchmarks to remain in the scheme.

Loans to students

The Bill will reframe the relationship between the student, the approved provider and the Commonwealth. Student loans will be approved by the Commonwealth but only if the student is eligible and it is for a course that is an approved course. Flexibility is given to the Commonwealth as to when loan payments may be made, enabling payments to be spread across the duration of a course. The Bill also provides the Commonwealth with the discretion not to pay a loan if, for example, it is satisfied a student is non-genuine or where it is suspected the approved provider is not complying with the conditions on its approval or the provisions in the Bill.

The Bill will retain the current academic suitability requirement to ensure loans are only approved for those students assessed as being academically suited to undertake the approved course. The Bill strengthens these measures by introducing a penalty that will apply to any provider that completes, or assists with completing, anything the student is required to do for the purposes of determining whether the student is academically suited.

A student's application for a VET student loan will have to meet the requirements in the Bill and the associated Rules. From 1 July 2017, a student engagement and progression requirement for continued access to the loan is expected to apply. Students will be required to log in periodically to confirm active and legitimate enrolment in the course. This provides greater protection for students by shifting the ability to access the loan away from the approved provider to the student. It does this by removing the provider's ability to re-enrol failing and absent students without their knowledge. The Commonwealth will have the discretion not to pay loan amounts if the student is not genuine.

The Bill authorises the collection of a VET student identifier as a condition of a student's eligibility for a loan. The student identifier is a lifelong unique number for all students undertaking nationally recognised training, unless exempt. Student identifiers can be created easily by the students themselves or, with permission, by a registered training organisation. The collection of a VET student identifier as a requirement for access to loans will enhance the integrity of VET student loans and improve program performance assessment and policy development.

The Bill retains the existing student repayment measures in the Higher Education Support Act 2003 (the HESA) to maintain repayment consistency with the rest of the Commonwealth's Higher Education Loan Program (HELP) loans. The current lifetime loan limit, repayment thresholds and rates, and the loan fee will continue to apply to VET student loans.

Approved courses

The Bill will establish a new framework to limit course eligibility for VET student loans to those courses approved by the Minister through a courses and loan caps determination. The focus will be on courses that have a high national priority, align with industry needs, contribute to addressing skills shortages and lead to employment outcomes.

The Bill enables the introduction of maximum loan amounts for eligible courses through the same courses and loan caps determination referred to above. Using this determination, the Commonwealth proposes the initial maximum loan caps to be set at $5000, $10,000 and $15,000, with the ability for the Minister to index and amend the caps, introduce new caps and to specify which courses fall under which band. For example, exceptions may need to be made to the cap amounts for courses that meet critical needs or are of national priority but have high delivery costs.

The Bill will also impose other course provision and delivery requirements to protect students including new limitations on third party training delivery. Approved providers may only subcontract training to other approved VET student loans providers or higher education providers accredited by the Tertiary Education Quality and Standards Agency (TEQSA). This ensures student training is subject to quality and regulatory scrutiny. Individual subcontractors delivering a subject that cannot otherwise be delivered by the provider may be approved on a case by case basis.

Approved course providers

The Bill will impose stronger eligibility requirements to qualify as an approved course provider under the VET student loan program. All existing VET FEE-HELP providers will have to apply to be approved under the new program. The Consequential and Transitional Bill will provide for certain bodies (such as TAFEs) to be exempt from the re-application process.

Providers will need to meet the new course provider requirements to be eligible to be approved as an approved course provider. Critically, providers must continue to meet these requirements for the duration of their approval. The requirements include having to be a 'fit and proper' person and having to satisfy the provider suitability requirements. The details of these requirements may be specified in the Rules. These will include new requirements regarding: student outcomes (eg completion rates), industry links, experience in providing vocational education, financial performance, strong management and governance, as well as having regard to the provider's course scope, tuition fees and modes of course delivery.

It will continue to be a requirement for approval that a provider be a party to a tuition assurance arrangement. The details of these arrangements will be provided for in the Rules. However, the Bill provides greater protection to students in the event of a provider ceasing to provide a course, by imposing obligations on the organisation that has agreed to provide the tuition assurance.

It is anticipated applications for provider approvals will be considered only on an annual basis. An application fee will now apply. The Charges Bill will also impose an annual charge on each provider as a tax. The Secretary will have the power to impose conditions on a provider's approval, for example, this may include capping the student loan amounts that may be paid to the provider. The Bill also introduces a limit on the duration of a provider's approval - a maximum of 7 years; thereafter the provider will have to apply again. Seven years aligns with the maximum length of registration as a registered training organisation under the National Vocational Education and Training Regulation Act 2011 and as a higher education provider under the Tertiary Education Quality and Standards Agency Act 2011.

The Bill strengthens the Commonwealth's ability to take action against those providers suspected of non-compliance and poor performance. A provider's approval may be suspended or revoked if the provider is not complying with its obligations under the Bill. Importantly, the Secretary may immediately suspend a provider's approval if the Secretary considers the circumstances warrant urgent action. Compliance action against a provider will continue to include tools such as compliance notices and audit requirements. However, failure to comply with a compliance notice will now be a penalty and a penalty will also apply if a provider fails to cooperate with an auditor or persons involved in the administration of the VET student loans program.

The Bill also expands the circumstances in which student debts can be remitted and explicitly prevents providers from pursuing outstanding debts from students where their loans have been cancelled. In circumstances where there has been unacceptable conduct by a provider, or if the provider's non-compliance has adversely affected the student, or if it is shown that the student is not eligible or not genuine, the Secretary has the discretion to re-credit the student's FEE-HELP balance without the student having to apply. In all cases, the Bill provides for the provider to pay to the Commonwealth the amount re-credited to the student.

Rules for approved course providers

The Bill will mirror and retain many of the important student protection reforms to the VET FEE-HELP scheme introduced through the Higher Education Support (VET FEE-HELP Reform) Amendment Act 2015, with a framework in the Bill to support detailed requirements in the Rules. This includes the measures such as the ban on prohibited inducements and cold-calling, the requirement to have a parent or guardian's signature for students under the age of eighteen, and enforcement provisions.

The Bill introduces a new ban on providers using brokers or agents to interact or engage with students in relation to VET student loans. This includes prohibiting brokers and agents from: enrolling students in courses for which the tuition fees will be covered by student loans, assisting students to complete applications for student loans or providing information or advice to students in relation to the VET student loans.

Providers will be required to meet the ongoing information requirements to be specified in the Rules, retain any documents or information as required by the Rules (for example, student records) and provide students with certain prescribed information. The Secretary will have the power to require both providers, as well as other persons, to produce information or documents that relate to compliance with the Bill.

The Bill will require providers to determine tuition fees in accordance with the Rules. This measure will continue to enable the Commonwealth to ensure fees are spread across the duration of a course. The fees must be published. Importantly, a provider cannot require a student to pay for tuition fees that are to be covered by a VET student loan. The Bill will retain the existing rules in relation to census days.

Regulatory powers

The Bill will provide for an enhanced compliance and regulatory framework by triggering all the powers under the Regulatory Powers (Standard Provisions) Act 2014. This includes monitoring and investigation powers and enforcement provisions such as civil penalties, infringement notices, enforceable undertakings and injunctions. The Bill expands the monitoring provisions by applying them to all of the Bill and not just the civil penalty provisions (as is the current position). Civil penalties will apply to more contraventions and the amounts of the penalties will, in many instances, increase to be more commensurate with the nature of the contravention. Enforceable undertakings and injunctions are both new enforcement tools. Importantly, the Bill will impose personal liability on executive officers of providers in relation to contravention of civil penalty provisions or the commission of any offences.

The Bill continues to regulate the management of information, ensuring the integrity of the VET information but at the same time enabling the use and disclosure of this information to support the effective and efficient administration of the Bill.

The Bill will also clarify and enhance the role of the National VET Regulator (that is, the Australian Skills Quality Authority) in ensuring compliance with the VET student loans program, including by empowering it to conduct compliance audits, to monitor and investigate compliance with the Bill, and to issue infringement notices under the Bill.

Consultation

In April 2016, the then Minister for Vocational Education and Skills, Senator the Hon Scott Ryan, hosted a series of face-to-face consultations in Perth, Adelaide, Melbourne, Sydney, Brisbane and Cairns. The intent of the consultations was to inform the content of a VET FEE-HELP discussion paper. A total 176 VET providers as well as a number of peak body organisations attended the consultations.

Subsequently, the 'Redesigning VET FEE-HELP discussion paper' was publicly released on 29 April 2016. 121 submissions were received, with the submissions and the Department of Education and Training's research informing the development of the final design of the new program.

Following the release of the discussion paper, departmental officials held teleconferences with state and territory officials. States and territories and employer groups have called for significant reform to protect the integrity of Australia's high quality training system and to ensure the system is delivering the skills needed for work.

The Attorney-General's Department, the Department of the Prime Minister and Cabinet, the Department of Finance, the Department of the Treasury, the Department of Social Services, the Department of Employment, VET providers, industry representatives, state and territory government officials, student and consumer protection advocates and the broader public have been consulted in relation to the development of the VET student loans program.

FINANCIAL IMPACT STATEMENT

These measures will reduce the value of new student loans being issued by more than $2.4 billion per annum by the end of the forward estimates in 2019-20. This will in turn lead to an estimated reduction in otherwise total outstanding HELP debt of more than $7 billion by June 2020 and by more than $25 billion by June 2026.

In underlying cash, the measures for the VET student loans program will cost $13 million over the forward estimates (administered funding). This is due to less interest and loan fee receipts received as a result of the reduced value of loans issued. In fiscal balance terms, the measures will save $13 million over the forward estimates due to reduced concessional loan costs.

The measure, including administered and departmental funding, will have the following impact on underlying cash over the forward estimates:

REGULATION IMPACT STATEMENT

The Regulation Impact Statement for the VET FEE-HELP Redesign forms part of this Explanatory Memorandum.