The VET fee-help scheme, which federal Education Minister Simon Birmingham finally axed last month, will be added to the list of government fiascos from which public servants can draw valuable lessons. The scheme began in 2012 under the Gillard government, with a simple and ostensibly uncontroversial objective: to extend HECS-style student loans originally designed for university students to those studying for diplomas and advanced diplomas in vocational education and training. Treating VET students taking courses lasting several years in the same way as university students would help to level the playing field in tertiary education and encourage more people into vocationally oriented education.
HECS (the higher education contribution scheme) is based on the principle that the government lends a student funds to cover his or her tuition fees, and the loans are repaid once the graduate's future earnings reach a certain threshold (currently about $54,000 a year). The government pays the loans directly to the universities in the form of grants and then recoups them from graduates through the income-tax system. HECS, introduced by the Hawke government in the 1980s, has been one of Australia's most successful policy innovations and has been copied widely internationally. Why wouldn't it work just as well for the VET sector?
First, the policy assumes that the education providers, in this case the colleges, are genuinely committed to educational quality and to equipping their students with useful, lifelong skills. If they accept the government grants, ultimately funded by student loans, they also take on an obligation to provide value for money in training outcomes.
While this assumption applies to the state-run TAFE institutions and the better, privately owned, vocational colleges, it doesn't hold for the less-scrupulous, for-profit colleges that mushroomed in response to a get-rich-quick opportunity. If they signed up students for a diploma, they could immediately pocket the government grant without committing themselves seriously to providing the training at the required standard. The government initially made rorting very easy, requiring only that students were enrolled on a particular day (the "census" date) and allowing the colleges to set their own fees. While colleges offering diplomas are subject to regulation and monitoring by federal and state governments, the number of shonky "colleges" and the extent of their duplicity clearly overwhelmed the existing regulatory systems.
Profiteering colleges also needed students who were willing to sign up. The second assumption on which HECS is founded, which was taken for granted in VET fee-help, is that individual students clearly accept the long-term financial commitment they take on as a justifiable price for the qualification they hope to receive. The colleges in question, however, targeted potential students who were poorly educated, sometimes intellectually disabled or with inadequate English skills. These students had little appreciation of the diploma they were enrolling in and little reasonable expectation of ever reaching the threshold income needed to begin paying off their debt. However, when offered a tempting inducement, such as a free laptop, they were naturally keen to sign up. In terms of their own immediate circumstances, getting a valuable laptop for no obvious cost made good sense. Indeed, some students reportedly signed up more than once and then sold off their surplus laptops. Colleges eagerly expanded the lucrative rort, using brokers to drum up trade, usually on a commission basis of about $800 a student, and jacking up the fees to outrageous levels. Unsurprisingly, the scheme's started to balloon out of control, rising from $325 million in 2012 to $2.8 billion in 2015.
Rorting by unscrupulous providers was not the only reason for the cost blow-out. As defenders of the scheme have pointed out, many of the new loans went to deserving students taking worthwhile courses in reputable TAFEs and colleges. In addition, some TAFEs themselves took advantage by upgrading courses to the necessary diploma level and thus gaining access to extra Commonwealth funds – a typical example of federal cost-shifting. Even so, large sums of public money were fraudulently misappropriated and thousands of ill-informed students were saddled with potentially crippling long-term debt.
The federal government was slow to respond to the growing crisis. It wasn't untill Birmingham became assistant education minister at the end of the Abbot government's first year that major changes were introduced. In 2015, Birmingham banned the use of inducements to encourage students to sign up and required colleges to give students more accurate information about the content of courses and their relevance for future employment. He also mandated more intensive monitoring of teaching institutions and authorised extra funds to the federal tertiary regulator, the Australian Skills Quality Authority. At the same time, he instituted an inquiry into the future of VET loans.
Last month, Education Minister Birmingham finally announced major changes to be introduced in 2017. The current VET fee-help scheme will be replaced with a newly badged "VET student loans" package. The main element of the new system will be much more rigorous vetting and monitoring of providers, to guarantee that courses are of value to students and employers. To attract funding, particular courses will need to align with industry needs and be demonstrably likely to lead to good employment opportunities. Loans will be capped at certain levels depending on the type of course and students will need to give continuing evidence of their bona fides. The use of brokers and other aggressive marketing techniques will be banned.
In essence, the revised scheme is what should have been introduced in the first place, as soon as governments decided to extend student loans to the vocational sector. Four years of painful trial and error should not have been needed to realise the extent of regulation that would be required.
What lessons can be learned from this failure? The secretary of the Department of the Prime Minister and Cabinet, Martin Parkinson, has used VET fee-help to make a general point that implementation is often more difficult than making policy and just as important, if not more so. Speaking recently to a conference on implementation in Melbourne, he urged policymakers to abandon their disdain for implementation. They should avoid a "set and forget" approach and instead create "a continuous and adaptive feedback loop between design and implementation". They should also give more attention to how policies will work out in practice. Failure to ask these hard, "real-world" questions had led to major stuff-ups, like the pink batts scheme as well as VET fee-help.
It's good advice, but not easy to follow. The centralised, top-down structure of modern government encourages a division between policy, which is authorised from above, and implementation, which is the task of subordinates. Feedback loops, on the other hand, suggest more horizontal, cooperative relationships that supersede any sharp distinction between policy and implementation, and are difficult to institutionalise in bureaucracies. Even so, as Parkinson suggests, policymakers shouldn't need a feedback loop to tell them that greedy opportunists will seek to exploit an uncapped, demand-driven scheme.
Another, related lesson is the importance of strong regulation in controlling for-profit providers of social services. The rorting of vocational education follows a long line of similar problems in government funding, for example in nursing homes, family-daycare centres and job assistance programs. All these areas share two features: first, the desired outcomes of government-funded services involve issues of social value that are impossible to reduce to readily quantifiable measures; second, the standard model of an effective provider is a values-based organisation, whether publicly or privately owned (such as a religious organisation, a charitable trust or a community group), that aims to provide high-quality care rather than return a profit for its owners. In such cases, regulation can be relatively light because the providers can usually be relied on to pursue the desired outcomes themselves. Once profit becomes the goal, however, providers have incentives to cut corners on quality. In the absence of trust, they must be subject to more intrusive controls and performance evaluation.
This general principle – that the for-profit commercial sector needs more government regulation than other sectors – is one that bureaucrats and other policymakers seem reluctant to recognise. It certainly runs counter to free-market ideology, according to which commercial companies are more efficient and effective than governments, provided they are untrammelled by government regulation. For whatever reason, governments continue to be surprised when profit-seeking entrepreneurs subvert well-intended schemes for their own benefit, regardless of the social consequences. What else should we expect? The present era of outsourcing and privatisation, if it's to achieve its ambition of improved government services at reasonable cost, requires more regulation, not less.
Richard Mulgan is an emeritus professor at the ANU's Crawford School of Public Policy. firstname.lastname@example.org