Voluntary Administration, closures and VSL – A New Year in VET
January 3, 2017 7 Comments
As many of you may be aware a number of RTOs have over the last few weeks have shut their doors either voluntarily or not so voluntarily. A significant proportion of these providers were ones which had large exposures to the VET fee Help market and have been financially impacted quite severely by the move to the new VET student loans scheme. Have we seen the last of these closures? I certainly don’t think we have. Over the rest of this financial year we will see the closure or downsizing of a significant number of VFH providers who, for what ever reason have been unable to adapt to the new market place.
Why is this happening? There are a number of quite obvious reasons why this is occurring, although it is important to note that I have know direct knowledge of the the reasons behind any or all of the recent spate of closures. The first reason I would point to however, is a simple one, either the provider has not been granted access to the new VSL system for whatever reason, or the courses which they relied on have been removed from the list. In both these cases the revenue which was being generated through VFH will have effectively stopped. Take for example a provider with $11 million turnover, $10 million of which came from VFH. Not being given access to VSL or having their courses removed from the list effectively reduces them to a $1 million turnover business and destroys the cash flow created through the VFH system. Finding a way to plug this revenue hole will be almost impossible given the changes under VSL, because even if the provider were to be granted VSL access in the next round or commence delivery of courses which are now on the approved list there are other issues which I will outline below.
The second reason why a number of VFH providers are struggling is the loan cap. As we know the government has capped loan amounts depending on the course you are undertaking, at $5,000, $10,000 and $15,000. Let’s take our $11 million provider again. Say they were delivering the Diploma of Leadership and Management under VFH for $15,000 and this accounted for all of their $10 million VFH income (I know this is unlikely but it is just an example). The price of the the Diploma is now capped by the government at $5000, so even if the provider is granted early access to VSL and can still generate the same number of enrollments, without the use of third party brokers (which now can’t be used under the legislation) their income from ‘Loans’ under VSL will be at most 1/3 of what it was under VFH, reducing their income to $3 million making it exceedingly difficult to continue operating the same manner they had been. The other thing to consider here is that even if the provider can generate the same number of enrollments, payments under VSL are now made on a completion rather than commencement basis. This means that providers now have to have enough additional cash flow generated from other sources to sustain delivery and assessment to these students for perhaps as long as six months before they complete and payments flow through. Even if therefore a provider was granted access to VSL and could generate the same level of enrollments, they will not, in most circumstances be able to maintain their cash flow at the same level which will of course mean they will either need to severely downsize or close.
The changes from VFH to VSL give us substantial evidence as to why providers should ensure that their revenue streams are as diversified as possible if they want to be able to sustain changes in government policy, funding and the market in general. Heavy reliance on one source of funding, as myself and others have said for a long time now, is a recipe for disaster. So will we see more of these closures? I certainly expect that we will, in particular I think we will as the end of this financial approaches and the legacy arrangements around VFH (and the payments associated with those arrangements) cease and revenue streams become tighter. I suspect that June/July will be the prime time this year for the closure of a number of RTOs
Anyway that’s just my opinion.
Happy New Year.
About pauldrasmussen
Workplace Learning, Development and Vocational education 
Paul, point of clarification…the “government has NOT capped the fee at $5000″…the RTO can charge whatever they wish, it is just that the government contribution is capped at $5K, or haev I got it wrong
Neale,
Yes you are correct I should have said the government has capped the loan amount not the fee. RTOs are free to charge whatever they want for their courses but the maximum loan amount is either 5, 10 or $15,000 depending on the band for the course. In practice though I tend to think this will amount to the same thing for all intents and purposes. If I am charging $10,000 or less for a Diploma of community services under VSL and another provider is charging $18,000 I think for most people there would need to be substantial and demonstrable additional benefits in order to convince them to spend and additional $8,000 of their own money in order to obtain the qualification.
“Heavy reliance on one source of funding, as myself and others have said for a long time now, is a recipe for disaster.” …..I think this is where the VET hierarchy has a misconception about what has actually happened. Many RTOs actually CAPITALISED on (not relied upon) the VFH arrangements, making millions, sadly with no real education taking place. And then they conveniently closed their doors when the legislation changed (Dec 01, 2016?)…with their millions tucked away in trust funds…
The VFH was a typically poorly thought-out initiative by the labor government (which admittedly, took the liberals some time to change and stop the obvious rort). The VFH system would have worked if there was a strictly independent body formed whose job was to assess a potential student’s ability to complete the course they were applying for.
As it stands, you have thousands of students (usually lower socioeconomic class) who have a $16K debt (or thereabouts) and nothing to show but lowered self esteem and self-worth, a huge taxpayers bill (that will never be repaid), very limited education for the years of the rort, and a select few RTO owners (i.e. CEOs, etc) who have walked away very rich people.
For the record, VET needs to be ‘wiped and rebooted’….for starters, trades only, as originally designed for, is the only way forward.
Geoff,
You are exactly there certainly were a number of RTOs who capitalised on the situation and used the changes as a convenient excuse to close up shop. One of the great things about the new legislation is the fact that it doesn’t allow for VSL providers to be owned by a trust so that it is not a simply matter to just siphon of funds to the trust and then close up shop. VFH was as you say a poorly thought out program from the beginning and should have been thrown away a long time prior to when it was. I can’t agree with the back to trades only idea. There are a number of industries such as community services where the qualifications work well (at entry level at least) and provide staff and employers with good outcomes.
Diplomas in community services and business environments have allowed many people to gain qualifications they would not otherwise have and in some cases (my own) have allowed a person to go on to a university qualification and successfully progress their working life into a whole new career.
Yes the VFH was a major rort on the Australian tax payer but I can’t remember any government getting anything right the first time and fixing a broken system allows some one to justify their jobs, great for some bureaucrat in a little office somewhere. There is never enough thought or resources committed to doing something right the first tiem, but always sufficient money to fix it again and again, just how the system works.
The change 12 months ago of having to have a Company Auditor, rather than a Chartered Accountant being significant, has added/will add to the burden of the smaller/boutique RTO’s.
Happily agree with Geoff, very correct in your statements, also were those who were able access fees for overseas students; as with many government initiates the intent is quite good, the screw up comes in the execution, but any additional burden, particularly financial, will contribute to the demise of that boutique SME, perhaps they required a more robust business model