On the cost of a Diploma

I have written on a number of occasions, about the rise in costs to students around diploma and advanced diploma qualifications since the introduction of VET FEE Help.  The other day I suggested that I saw very little justification for pricing a diploma or even an advanced diploma at over $10,000 per student.  I was challenged about this statement by a number of people, so I thought it might be worth exploring again and pointing to my justifications for my statements.  Firstly I do agree that there may be some qualifications where due to the need for the RTO to have expensive equipment available for trainees that there could be a higher cost, however I think that these are not the norm and in the discussion that follows I will be considering average, highly accessed qualifications.  I think where a provider thinks that their costs are outside of what I suggest that perhaps the onus needs to be on them to show us why they think that and not the other way around.

Firstly let’s go back just a couple of years to around 2011/12, where most diploma level qualifications were around the $5,000 mark and advanced diplomas around $8,000.  At these levels providers seemed to be profitable and their business models seemed to be working.  Now if we scroll ahead to today and apply a CPI increase over that time of about 10% (it was actually a little less but lets just use round numbers shall we) that would make a diploma $5500 and an advanced diploma $8800.  However we are seeing prices in the market place above $10,000 for a diploma and in some cases above $15,000.  Which leads me to suggest that well one of three things must have happened.

  1. Costs of delivery have risen by something in the vicinity of 200-300%
  2. Previous business models were deeply flawed, unable to cope with all of the changes over the last 3 years and needed to be altered, or
  3. There is perhaps a lot more profit being made then there was 3 years ago.

Certainly one of the things I think has happened is that now providers are charging much higher prices and running courses with substantially lower numbers.  As we will see when I throw around some figures if the static cost of running a course is $30,000 then if you are charging $15,000 a student you only need two students to cover the costs, where as back in the old days (2011) you would have needed 6.  But it also means that after those two students, except for any small per student on costs everything else is profit.

So lets take a look at how much a diploma might cost.  Now remember I am just looking at what an average cost might be.

Firstly we have the costs associated with a trainer.  Now lets say we allow $45.00/ hour as a base rate and to calculate our day rates lets say that the ‘day rate’ is made up of 8 hours of teaching and 4 hours of assessment, support and other activities.  So that makes the per day cost of a trainer about $630.  Lets then allow 2.6 days per unit (face to face) with an average of 15 units making the total number of days 40.  This makes the total trainer costs for the course including marking and other activities around $25,200.

We have other costs apart from the trainer though don’t we.  For administration lets add in an additional 30 hours at the same rate, which given the efficiency of technology is I think pretty reasonable, that brings us up to $26,550.  But wait there is more lets add an additional 75% of that figure to cover general outgoings, management costs and all of those other little things including hopefully some profit.  Now we end up with a total cost to run the course of $46,462.  Now this is how much it costs to run the course whether there is one student or 15 students, save for perhaps a small resource cost per student.  So that total costs to run a face to face diploma course is around $40-50,000.  So I need 4-5 students at $10,000/ student to break even and make a little bit of profit (remember I built that in).  Any more students than that and the profitability of the course goes up.  At $15,000 a student we only need 3 students.

Trainer Costs
Daily Rate Including Training, prepartion and assessment $630.00
Days per course 40.00
Total Trainer Costs per program $25,200.00
Adminstration Costs
Hourly Rate $45.00
Administration hours/course 30.00
Administration Staff Costs/course $1,350.00
Subtotal of Costs $26,550.00
Management Fees
Costs related to management of programs $19,912.50
Total Direct costs per course $46,462.50

This brings a very serious question to my mind, are there really providers out there who are operating on minimum students levels of 2-3 in their classes for face to face? More than that though if we start to think about all of the courses and programs which are being offered online, with the same price tag, yet in some cases 100’s of students, a cost of $15,000 seems completely unjustifiable to me.

Here is my honest opinion, I would probably not run a face to face program for a cohort of only 4-5 students, mainly because I struggle to see how with that small number you are going to get any real social, group learning going on.  It is really just going to be a chalk and talk, here are the answers to the questions style program isn’t it?  Please someone correct me if I am wrong.  Also if I was only attracting that number of students into a course I would be asking myself whether or not there was a market, or if I was doing something radically wrong with my marketing.

Of course I have purposely left something out of this equation.  The one single thing that in my opinion has not only caused the massive jump in prices for diploma and above qualifications, but also the thing that has had an incredibly detrimental effect on the sector as a whole and that is education brokers.  With brokers taking  between 25% and 50% of the cost of a qualification (I recently hear of one who was marketing 79 students who would enrol in any qualification you like, but his cut was 75% of the course fee) it is really easy to see why prices have gone up.  At 50% a $15,000 qualification cost become $7,500 for the RTO.  It is this cost, the costs providers have been willing to pay brokers, just to get students through the door that has more than anything driven prices up and in my opinion has provided nothing to industry except for numbers.

 

Anyway, that’s just my opinion.

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About pauldrasmussen
Paul Rasmussen is one of Australia’s most widely read Vocational Education and Training Commentators. He provides deep, unbiased analysis and insights not only on topical issues, but also on the underlying structure and policy which supports the industry. His writing and analysis has been praised for its uncompromising and thought provoking style and its ability to focus on the issues of real importance to the sector. He has advised various government departments and ministers, training providers, public and private organisations, not for profits and small to medium enterprises on the VET sector and the issues and opportunities facing it. He is one of Australia’s most awarded learning professionals and a regular speaker at a range of conventions and forums. His extensive experience in vocational education, and learning and development coupled with formal qualifications in philosophy, ethics, business and education management allow Paul to provide a unique view of the road ahead and how to navigate it.

11 Responses to On the cost of a Diploma

  1. Janice H says:

    Yep, brokers are a major factor particularly when so many courses like dip bus are being offered at $18,000 for an online course which should be reducing your overheads. VFH providers do seem to charge significantly more.

  2. Look I agree somewhat- and am astounded at some of the prices out there….

    In your calculations I can’t see where you have calculated for resources and rent??

    I also can’t see where you have taken into account the high drop out rates of current….

    There seems to be some vast range of fees depending on whether you are State funded, VFH, CRICOS or FFS….

    NSW and most other States have a funding model that have determined a qualification value… Why would a provider charge a over this??

    Good luck to all the providers out there trying to do the right thing… Looks like compliance just became more complex… Again…

    • pauldrasmussen says:

      Lea, I wasn’t explicit but all of those thing would make up the 75% ‘management fee’ component. The real problem is that in most states and definitely in QLD there are a lot of qualifications that are not on the funded list so they don’t have a government price tag associated with them, Diploma of Counselling is a good example.

  3. Adam Clarke says:

    Great article Paul, I think you’ve provided very good commentary on what is a growing issue within our sector. I particularly acknowledge your point re: brokers and the fee levels that we’re seeing from this group – perhaps this is the unintended consequence of fee deregulation within the sector.

    • pauldrasmussen says:

      Adam, I certainly think that the rise of education brokers in the market has be a consequence of fee deregulation, if you can sign a student up to a course and get 50% of what the RTO gets there is a strong bias towards trying to drive the price up.

  4. Boris Kelly says:

    Thanks Paul I enjoy your posts so keep them coming. In response, I think generalisations are troublesome given the wide range of variables. Inherent in your comments, is the notion of intervention in the market by capping prices. I think that would cause all sorts of problems beyond those the sector faces at present. We don’t use agents, we receive no government funding or subsidised places, our class numbers are consistent and viable, our course fees are in the upper mid-range, we have modest margins, high completion rates and excellent student outcomes. We are a VFH provider.

    I would vigorously resist any market intervention of the kind that underpins your argument. However, there are obviously business models out there that are excessively profit driven at the expense of quality and compliance. These, quite rightly, should be sanctioned using the appropriate means but the current approach of punishing the many for the sins of the few is counter-productive.

    I think it is interesting that in discussions of course fees the extent of taxpayer subsidy of the public sector is often ignored in favour of attacks on private providers. Not to mention compliance in the public sector. If the same scrutiny and media exposure that is currently being applied to the private sector were applied to public providers we might have a more balanced debate. Unfortunately, private providers have a lame duck peak body that cannot compete with public sector advocacy.

  5. Gaven Ferguson says:

    I can’t see how to think a quality course can run for only 2.5 days a subject. This is not enough time provide sufficient knowledge to a student. I suggest at least 2 days a week over 3 or 4 weeks minimum. I agree wirh prices being high and sonewhat over the top but you also forgot that a number of prices for rents, insurances, fees, and licenses have all gone up (in some cases significantly) and what about distances trainers now have to travel in some instances . Some of our trainers travel many hundreds of km a week to run classes for groups. Maybe there should be loadings attached to courses for regions or something.

    • pauldrasmussen says:

      Gaven, certainly I agree that where they may be large components of travel etc, particularly in rural and remote areas there is going to be an necessary increase in the costs involved in the delivery of a course. I guess with the 2.5 days it depends a lot on the cohort of people that you are training. 2.5 days over 40 weeks gives about 700 hours of face to face learning, which is probably around 50% of the nominal hours for a range of programs. When you add to this student independent learning and study it seems to hit the mark fairly well for overall VOL kinds of calculations. Again though this is a cohort and qualification thing and is going to differ depending on cohorts. In relation to rents etc, I kind of rolled all of that into the 75% management fee component.

  6. Tony Spencer says:

    Good food for thought, but in the context of remote clients where travel costs to/from community are usually around 50% of course costs, or support for ESL learners, or where there will never be a cohort of >5 learners, if these costs are factored into the total cost of delivery, what then?

    We would also need to look at the type of Diploma, for instance a Leadership & Management Diploma as opposed to a Diploma of Nursing, with cost of access to health workplace or maintenance of sim rooms at training hospitals, cost of industry experts in health, as well as insurances around high risk industries?

    Depending on the cicumstances there may well be valid reasons for seemly high non mainstream Diploma costs

  7. Cheffo says:

    Greed has taken over and mammon rules! Both public and private providers are all lining up for the handouts. In the USA student loans are now crazy and the future liabilities on the economy have not been researched. I am disappointed that ethics seem to just evaporate. People should realise you can’t take the money with you, nor can you buy happiness. Karma rules!

  8. tafe_teacher says:

    One private provider sells courses online diploma level courses for $3000. The same owner has another company, selling the same suite of courses online for $16,000. What is the difference? the second company is fee-help. The fee-help business enrolled over 600 people in 2015 and six completed. There is no public benefit in this but presumably people are making a lot of money.

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