On completion vs Commencement Payments – Some Thoughts

I wrote a piece last week about the state of VET FEE – Help (VFH) and listed a number of points that I thought needed to be addressed by any government considering changing the way in which the system works.  One of those points, that a completion based payment system rather than a commencement based system should be considered created significant discussion, so I thought as the issue is quite complicated that rather than try to answer questions or outline my position in a range of forums I would simply write about it here.

As we know VFH is a system in which payments to the provider from the funding body (Federal Government) are paid on the commencement of a student in a program of study.  This is diametrically opposed to the way in which funding works in a number of the states, notably QLD, where payments to the provider are made on a unit completion basis. One, VFH is essentially an inputs system while the other is an outcome system.  I suggested in my post that a new VFH system should consider moving towards a completion based system as a built-in safeguard to ensure that providers do not enroll students who they are not confident will complete at least a significant proportion of the course in question.  One of the reasons why VFH came to be viewed as a cash cow by a range of providers was the fact that payments were made on the basis of commencement, that is passing a certain census date.  Large number of students could be enrolled, significant cash funneled into the business and there was very little regulation around completion rates, this meant that unscrupulous providers could milk the system for significant amounts of money without having to actually provide anything to anyone.  It could be suggested that one of the reasons why the Mega-providers we have now came into existence was almost entirely due to the payments on commencement system which allow the creation of large war chests of capital available to fuel growth over a very short period of time.  This exponential growth would have been significantly more difficult under a completions based model.

Let us them oppose this system with the one which is in place for government funding training in Queensland.  Direct funding in QLD through the government pre-qualified supplier arrangements are structured so that RTOs are paid only when a student completes a unit of study with an appropriate completion type, in general Competent or RPL granted.  There are no upfront fees paid by the government at all, although they do insist that providers charge a mandatory student contribution fee, though they do no mandate to providers what that fee might so.  Payments are made to providers on a monthly basis on the acceptance by the department of an extended AVETMISS data report, capturing those students who have completed and for whom a payment is allowed.  In addition where a student withdraws from a course and the provider has delivered training to the student a percentage claim can be made (withdrawn – non assessed) to compensate the provider for resources that may have been consumed in the delivery of training to the withdrawn student.  In general payments relating to student completions take no more than 6 weeks be paid to the provider from the time the student completed the unit.  If a student completed on the 1st of the month it would be approximately 6 weeks until the payment for that unit came through between 10-14 of the next month.  What I am suggesting is a system such as this be implemented in relation to VFH.

Now I think it is very important to note here, but in my opinion the business models adopted by providers in relation to how their businesses run should have no bearing on  the decisions of government in relation to how they fund courses.  Simply because a change to a funding model makes it more difficult for a provider should not in general be the concern of government, providers should be flexible enough to adapt their business models to these changes.  Now while this may seem harsh on the surface, anyone who has had a passing involvement in this sector knows that funding arrangements are always subject to change and providers either are able to cope with that change or they are not.

There were a couple of key discussion points that were raised in opposition to my suggestion of moving to a completion based model;

  1. Providers have costs such as staff, trainers, rent and other overheads which have to be paid regardless of whether a student completes.
  2. Non-completion is often out of control of the provider, and
  3. Manipulation of outcomes to ensure that students pass/complete units leading to a devaluing of sector qualification.

I will look at each of these in order and offer a response to them.

Issue 1: Providers have costs such as staff, trainers, rent and other overheads which have to be paid regardless of whether a student completes.

Yes, that is simply to my mind about being in business, there are always expenses and how you structure and run your business particularly in relation to how payments are made is your business. Also again to take QLD for example there are numerous PQS providers who seem to cope quite well with all of these expenses in a completion payment environment and in addition if a completion payment model was to adopted where providers were compensated for withdrawals with a percentage payment to cover training expenditure would not this reduce the problem here.

Issue 2: Non-completion is often out of control of the provider.

Again, yes this is true in fact I would say that more often than not non-completion is out of control of the provider.  However completion payment systems where withdrawal is compensated for ensures that an RTO is very proactive in relation to the progression of their students in their chosen of study.  Students are worked with constantly to ensure that they are moving forward, assistance given where they may be struggling with particular elements or units, and processes around withdrawal or transferring to other programs, clearly articulated.  Now I am not suggesting that VFH providers don’t do this, I am simply suggesting that under a completion payment system, this whole process is managed more tightly simply because it needs to be.  What a completion based system does do, l is make the RTO more considerate of a students chances of finishing a program of study than under a commencement system.  Now while 100% completion rates are impossible with good student enrollment policies and good systems in place 75%+ is not difficult to achieve without the problem alluded to in Issue 3 raising its head.  In fact I know of a enterprise provider in a highly regulated industry who had a 98%+ completion rate for its apprentices.  Why? Because they were selective about who they bought on and they worked extremely hard with each and every student.  Now of course there is wide difference between that sort of model and a more commercial model, however if profitability it not your central goal, then being selective about the students that you chose to offer programs to and how you manage those students can have substantial effects on your completion rates.

Issue 3; Devaluing of the sector due to people simply being passed to make completion payments

Again Yes, this may be a problem, however I think the damage done to the sector in the last 12-18 months by the VFH debacle has harmed the reputation of the sector than anything that has happened before.  How do we combat this then; contractual compliance audits outside of the normal ASQA audit cycle are one way.  Again to reference QLD the education department can audit a provider at anytime and look at their outcomes, time frames, evidence (essentially all of things ASQA would look at) and more to determine whether or not the RTO is meeting the contractual requirements.  The QLD department has over the last 12 months and previous to that imposed a range of sanctions on providers up to and including removal of their PQS status for non-compliance with contractual arrangements.

One of the things I think is crucial with any new system of funding be it commencement or completion based, but particularly in relation to commencement funding is for the government to be able to quickly and easily recover funds that have been paid up front.  Where we have seen completion rates as low as 2-4% for online courses the government should have simply been able to say, you haven’t met the standard benchmarks you need to give us the money we paid you upfront back or to at least suspend payments until the amount owing has been recovered.

Perhaps however there might also be some compromise position which will reduce some of the concerns people have while at the same time providing for better control over the funding and the outcomes that are supposed to relate to this funding.  Perhaps a model could be developed which paid a small percentage of the overall potential claim at enrollment with subsequent payments  being provided on a completion basis and adjusted accordingly.  So bear with me while I describe what is in my head;

  • RTO enrolls 10 students in a course at $10,000 per student  (Total potential claim TPC $100,000)
  • At census date RTO is paid a nominal percentage of the TPC say 20%, which would be $20,000.  This would be a figure that would relate to what the funding body saw as lowest acceptable completion rate.
  • Completion payments are then adjusted as students complete and the RTO is liable to pay back any amounts where the overall completion rate is less that the initial payment.
  • Where 20% of students completed RTO would get no additional funds over the initial payment
  • Where 10% of students completed RTO would be required to repay 50% of initial payment or $10,000
  • Where 50% of students completed RTO would receive an additional 30% of total potential payment or $30,000 making a total of $50,000 in payments.  Additional payments would be made on a month by month basis on the completion of various units by students.
  • RTO could claim a rebate of say 25-50% of total potential claim per student where student withdraws by RTO has delivered training to the student.

Anyway that’s just my opinion.

 

 

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Reinventing VET FEE – Help

So I think no matter what happens in September or October at the next federal election the VET FEE-Help (VFH) will change in 2017 and I think for a lot of us in the sector, particularly those who have been around for a while, changes to the system cannot come quickly enough.  We have seen the VFH system spiral out of control over the last couple of years.  I have on a more than a few occasions previously suggested that while there have certainly been unscrupulous, profiteering activities by a small number of providers the main issue with VFH was that the system and the contracts around it were simply not appropriate.

Even if we simply consider the process of applying for status as a VFH provider, the focus was almost completely on the financial aspect, sure there were a few nods to policies and procedures, but in the long run financials were what the decisions were based on.  Part of me understands mindset here, providers are regulated by ASQA and therefore if they where a registered provider then the compliance around quality of training and outcomes should have technically at least been taken care of.  But without a doubt this mindset is wrong, not because ASQA is not doing its job but because registration as a provider is simply a compliance process and not a quality process.  In addition it seems to me to be obvious that simple compliance is insufficient when we are talking about contractual arrangements of the nature of VFH.

So given the government has said that they have open table policy in terms of changes to the VFH system what changes do I think need to be made in order to make the system work more effectively, given that I think we need to have an income contingent loans system for vocational education.

  1. Ban completely or restrict heavily the use of education brokers.  I disagree somewhat with ACPET’s stance here and also the argument that it is difficult to find students without the use of a brokerage.  Student recruitment and marketing should be controlled in house with no loopholes for the RTO to blame third parties for any issues.
  2. Extra scrutiny paid to providers who delivery a significant portion of their programs online, because well lets be honest it just hasn’t worked and figures show that strongly.
  3. ASQA registration, financial information and a nod to quality through polices is simply not enough.  That being said, being anything less that medium risk with the regulator should have their VFH status refused or paused until such time as they can show that they are back at medium risk or below.
  4. RTOs must have been trading/delivering training for a substantial period of time, I think at least five years.  No provider should be able to start-up and get VFH status.  I think the must have been delivering Diploma level courses for 5 years concept is a bit wrong-headed as there are quite a number of legitimate reasons why a high quality provider may have chosen not to become involved in Diploma level qualifications and a range of reasons not relating to directly to VFH for them to decide to take them on.
  5. Buying, transferring ownership, rolling up into a holding company or any activities like that should void the VFH status of the RTOs and a reapplication process with their new status commenced.
  6. Payment should be on completion of units or subjects not commencement.  If you can’t cash flow your business to cope with this then your business model is probably wrong.
  7. Significant movements in a providers VFH enrolments, particularly increases and particularly in programs with low employment outcomes should trigger audits from both the department and ASQA.
  8. Active monitoring of marketing advertising and student enrollment practices needs to be instituted.
  9. Complaints process that triggers cessation of payments for the particular student or for all payments where there are significant numbers or types of complaints.
  10. Automatic 5 year ban from operating or being a high managerial agent of a VFH provider where there have been negative findings relating to another RTO they have been involved with.
  11. Automatic cessation of payments where any action is taken by ASQA, ACCC, The Department or any other similar body against a provider.
  12. Where potential students may be eligible for alternative funding options to VFH to access a course they must be notified of those other options.
  13. Limit fees.  I have often said I struggle with Diploma prices over $10,000 given that 3-5 years ago they were as low as $5,000.  This should particularly be the case where the course has low employment outcomes or workforce needs (Diploma of Counselling for example).  Set a standard limit on fees and if providers wish to charge more than this they must make their case as to why as part of their application for VFH status.
  14. Give the Department the power to simply cease payments immediately where any matter of concern arises until that matter has been decided.
  15. Cancel all existing VFH provider status and make every provider reapply.
  16. Transition any continuing students to the new system and even new providers where necessary.
  17. Strong government information campaign around VFH, what is legal and what isn’t.

So there are my thoughts on at least some things that would make a much better VFH system.  I know that some of you are going to disagree strongly with my on some of the points I have made and I would be really interested in hearing why you disagree and what you think an alternative would be.

 

Anyway that’s just my opinion.

 

New Year – New VET or does nothing really ever change

First off I hope that everyone had a wonder Christmas and New Year and that at least some of you got away from the daily grind for a little bit of  break.  For me it has been interesting to have an actual significant break over the Christmas and New Year period.  Usually I take holidays at other times during the year and simply escape the office for public holidays and maybe a couple of extra days.  So between Christmas itself, seeing Weird Al Yankovic at falls and renovating my kitchen I for once in a long time have not paid significant attention to the various machinations within the sector.

The big thing that has happened of course are the changes to the VFH system.  There has been substantial commentary from a number of sources around this so I won’t say a lot.  My one concern out of the whole bag of tricks is the requirement that providers must have been delivering Diploma Qualifications for 5 years or more, regardless of how long you have been an RTO for.  We would be ineligible under these new provisions despite the fact that we have been a successful, low risk, NFP RTO since 1998, but because our business for many years was focused on new workers and workers with disabilities we until relatively recently never bother to put diploma level qualifications on our scope.  I can understand why it is the government has decided this, but I also sincerely hope that in the fullness of time they rethink this and make allowances for those reputable RTOs who have well established track records, but who for many legitimate reasons had previously chosen not to deliver diploma level qualifications.

So enough of that and two the year ahead.  First things first, for those of you who are interested I will be presenting at the AITD conference in Sydney on 5-6 May this year on the topic of reconnecting L&D and VET, so if you are going to attend the conference, come and say hi.

What then are we gong to see in the sector over the next 12 months.  Firstly I think we will see more prosecutions by the ACCC and more actions from ASQA.  I suspect we will see somewhere in the vicinity of 8-10 providers (including some large ones) investigated by the ACCC as well as a number of the brokerages.  We will also see more cancellations of registrations over the coming months as well, both voluntary and involuntary and further constrictions on how the VFH systems operate with a view to a revamped system being run up the flag pole prior to the end of 2016 for commencement in 2017.  What that system might look like and where it might be focused I think will depend to a very large extent on the outcomes of the next federal election which PM Turnbull has already suggested will be in September or October.

I think we will also see further TAFE campuses close as the costs associated with maintaining large facilities for smaller numbers of students becomes financially difficult to swallow.  In fact if rumors are to be believed the Dapto campus will be closing this week and moving to leased facilities to reduce their $650,000 operating expenses for 10 students.  We will also I think see a shift in the educational brokerage market.  We will see less RTOs utilising these third part providers and more bringing the student recruitment processes back inside their own walls, where to be honest I thing they belong and where the RTOs themselves have far greater control over what is happening.

We will of course also see some significant changes in how the various states deal with their direct funding initiative.  We are in fact already seeing the Victorian government change the structure of its funding programs and we will see other changes, in some cases significant and in others tweaking of systems which are already working fairly well.  I suspect in Queensland we will see a more rigorous process around becoming a contracted provider when the current contracts come up for renewal in June.

Will it be a tough year, I think for those providers who haven’t built sustainable and ethical income streams, particularly those who have relied on ever-increasing student enrollment to fuel growth it will be particularly hard and we will see job cuts and business changes in those organisations if they manage to continue at all, but for the rest of us I think it will be pretty much as it has been for long time, business as usual.

 

Anyway that’s just my opinion.

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