January 3, 2017 6 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.