Student loan caps must be part of total redesign of vocational funding system

In his budget address, Opposition Leader Bill Shorten said Labor would introduce a cap of $8,000 on student loans for vocational education and training (VET) courses.

A course loan cap is a sensible option, but it must form part of a total redesign of the VET FEE-HELP student loan scheme in the first instance, and of the whole VET funding system in the longer term.

Currently, there are no loan caps for courses where providers set their own fees and don’t receive a course subsidy through the states.

The Labor proposal is to set a maximum loan cap of $8,000 per course funded under VET FEE-HELP (except for some high-cost courses approved by the education minister). The cap doesn’t extend to higher education diploma and advanced diploma courses.

For those courses that are subsidised by the states where fees are regulated, the Commonwealth and the states already have in place fee benchmarks of $5,000 in 2011. This regulated fee is effectively a loan cap.

Unsurprisingly, most of the expansion in VET FEE-HELP and all of the problems with unscrupulous provider behaviour have been in the unregulated fee area, where some providers have charged fees of over 400% more than the price paid by the states for the same course.

The government itself has raised the option of capping loan fees in its recently released VET FEE-HELP discussion paper.

It’s an option the government should have considered last year in its initial reforms to VET FEE-HELP.

The government capped overall provider loan limits at the provider’s 2015 loan levels, but while restraining overall VET FEE-HELP payments, this measure did nothing to reduce excessive fee and loan levels for many courses.

Other things to consider

However, if loan limits are to be introduced for VET FEE-HELP, the rationale for setting the loan limits must be carefully thought through.

For example, are the loan limits related to course cost or to returns to students from the course – or some combination of the two?

How do VET FEE-HELP loan limits compare to the prices paid by the states for the same qualification? If the prices vary, how do we avoid cost shifting between the Commonwealth and the states to gain access to the highest price?

A further consideration is that loan fees are capped for VET FEE-HELP but not for higher education diploma and advanced diploma courses. Therefore, there will be major incentives for providers to shift their VET courses into the higher education sector, particularly where providers already operate in both sectors.

The government has also criticised the Labor policy on the basis that students will have to pay upfront fees where the provider fee is higher than the loan.

However, hundreds of thousands of VET students in certificate-level courses already pay upfront fees (as they cannot access VET FEE-HELP).

We need policy consistency across the VET funding system, not just within VET FEE-HELP.

With overall public investment in VET in decline, we need a framework for financing VET in Australia agreed by the Commonwealth and state governments.

This system has to span direct public investment in VET and income-contingent loans.

Course loan caps linked to prices agreed by the Commonwealth and the states should be part of that system.

But loan caps alone are only a partial solution to a much bigger policy problem – declining public investment in VET and a dysfunctional VET financing system, which to date neither side of politics has been willing to address.

Peter Noonan is a Professorial Fellow in the Mitchell Institute at Victoria University. The University receives funding through the HELP system for higher education and VET courses.

Peter Noonan, Mitchell Professorial Fellow, Victoria University

This article was originally published on The Conversation. Read the original article.