On completion vs Commencement Payments – Some Thoughts
January 25, 2016 3 Comments
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;
- Providers have costs such as staff, trainers, rent and other overheads which have to be paid regardless of whether a student completes.
- Non-completion is often out of control of the provider, and
- 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.