According to a confidential report, Australia’s largest private training college raked in hundreds of millions in public money before its collapse, despite abysmal completion rates. A senior figure in the sector fears it could happen again. By Paddy Manning.

Repairing vocational education

The former education minister Simon Birmingham (left) and the current skills minister, Michaelia Cash.
The former education minister Simon Birmingham (left) and the current skills minister, Michaelia Cash.
Credit: Kelly Barnes / AAP Image

When Careers Australia collapsed in May 2017 it was the country’s biggest private training organisation. Along with its subsidiaries, the group had 19,000 students across hundreds of courses and 1100 employees but it was facing financial ruin – owing more than $150 million to creditors, including the Education Department, Westpac, NAB and the Australian Tax Office. Its administrators identified there were more than 20,000 potential unsecured creditors affected, including students.

Careers Australia pulled the pin suddenly, after the federal government refused to renew the organisation’s authority to deliver courses, citing its controversial record. The announcement to students and staff came without warning – all classes were cancelled, indefinitely. Careers Australia had relied on the federal government for 90 per cent of its revenue.

It was a baptism of fire for Craig Robertson, then just weeks into his job as head of TAFE Directors Australia (TDA), the peak body that represents TAFEs from every state and territory. TDA – a small organisation, with a tiny staff – took over responsibility for about 7000 enrolments under the national tuition assurance scheme. Robertson recalls how “our office phones went crazy”, fielding calls from panicked teachers and students.

“I’d always thought Careers Australia was a fairly respectable operator,” says Robertson. “It wasn’t until we really looked at the data that we realised what was going on.”

Once TDA started reviewing the company’s records, Robertson saw how Careers Australia had worked the government’s loan scheme for vocational education to maximise profits. According to a confidential internal report, seen by The Saturday Paper, Careers Australia received more than $578 million in Commonwealth money in four years by cutting corners on training quality, and ultimately left thousands of students in limbo.

Under the VET FEE-HELP scheme, this was perfectly legal. The Saturday Paper is not suggesting Careers Australia’s board had any knowledge of misconduct.

Two years later, Robertson says he is concerned there could be a repeat of the crisis that saw private colleges across Australia paid billions of dollars in public subsidies through the VET FEE-HELP scheme for poor-quality diploma and associate diploma courses.

VET FEE-HELP, a vocational education equivalent of HECS loans for university students, was first introduced by the Coalition but was overhauled and expanded by the Gillard government in 2012, which introduced the demand-driven funding model. It was scrapped at the end of December 2016, replaced by the VET Student Loans scheme. But Robertson fears the lessons of the VET FEE-HELP disaster have not been learnt.

Often, industry compliance scandals are blamed on a few rogue operators. In the VET FEE-HELP debacle, scandal engulfed the biggest training outfits. Some 150 dodgy private colleges have been shut down or kicked out of the system since a crackdown by the Australian Skills Quality Authority. But their misdeeds also tarnished the reputation of many high-quality, niche private colleges, which had operated without issue for decades. Confidence in the whole vocational education sector was shaken, leaving Australia facing a skills crisis. In the years since, TAFE enrolments have halved.

Andrew Norton, higher education director at the Grattan Institute, says the expansion of VET FEE-HELP by the Gillard government was “in principle, a very good idea, but clearly it’s been very hard to run in practice”.

He continues: “Possibly the lessons have been learnt but whether there is the regulatory infrastructure to ensure that it can’t happen again, I am not so sure. Even though there are providers being deregistered, I wouldn’t be convinced that the industry is clean.”

This week, Grattan released a report showing vocational diplomas in construction, engineering and commerce typically lead to higher lifetime incomes than many low-ATAR university graduates are likely to earn, especially those with degrees in popular fields such as science and the humanities. However, as Norton points out, vocational education has flatlined over the past 20 years while higher education has boomed.

“Funding for vocational education has gone down,” says Norton, “both from a loss of direct subsidy and a loss of revenue from the [VET FEE-HELP] student loan scheme.” He argues the extension of the entitlement-based funding model used for a small number of universities to vocational education was always going to be problematic.

“Unfortunately, the history of this industry, where you’ve got about 4000 often quite small providers in the market, makes it very hard to regulate, and as a result schemes that work reasonably well in higher education have been very troubled in vocational education,” Norton says.

In Robertson’s view, Careers Australia was emblematic of what went wrong with the training industry. Private colleges got paid upfront in full for delivering courses, despite abysmal completion rates by students – in some cases as low as 2 or 3 per cent. In 2016, the then education minister, Simon Birmingham, introduced three census dates to ensure colleges were not being paid the full course fee before students had finished the course.

But Robertson says that Careers Australia worked around the requirement by operating very short units of study so there were regular census dates to maximise cash flow. “You would sign up for a qualification that has 10 units … Because all of the units were short and they followed each other, you would just trip all of those census dates, so you met the three census date requirements, but you just cascaded very quickly into each unit.”

When it took over, TDA found many students had passed their last census dates years earlier but had never completed their training, even though Careers Australia had received the cash at the time. “Students may have been misguided in thinking that they had plenty of time to complete their training,” the TDA report notes. Robertson says the Commonwealth paperwork was very clear that there was no obligation on the provider to help the student complete their course. “That model still remains,” he says.

Robertson says that because the government and providers are currently focused on getting completion rates back up, there is no problem. But he says that if that scrutiny falls away, providers could still abuse the system because the structural issues haven’t been addressed. “Our point is that in two, three years’ time, when everybody has turned their focus to something else, it could be an easy thing to try to do,” he says.

As Careers Australia’s business model came under pressure, it tried to use education broker Acquire Learning to boost enrolments in its subsidiary training organisation, the Australian School of Management. Acquire would get prospective jobseekers in, urge them to do a course and then ASM would come in and do the training.

Robertson says Acquire, in turn, sold off two registered training organisations (RTOs) – Franklyn Scholar and the Asia Pacific Training Institute – to another provider, which subsequently collapsed. Again, TDA wound up with responsibility for the students.

“When we looked at the data, we found there was a 90 per cent failure rate for 2016 students,” says Robertson, explaining that Acquire didn’t want to encumber the potential sale of these RTOs by requiring the buyer to continue the training of current students. “So, they wholesale-failed all of those students. Now, most of those students wouldn’t even know that they were wholesale-failed in 2016. It was egregious behaviour of Acquire, to make it an easy sale.” Hundreds of students were affected.

Ahead of last Friday’s Council of Australian Governments meeting, Scott Morrison put vocational education top of the agenda. State and territory leaders agreed on a new one-page vision statement for the sector, which acknowledged “the importance of a viable and robust system of both public and private providers, and the particular role of states and territories in facilitating the public provision of VET”.

Last year, soon after he became prime minister, Morrison commissioned Steven Joyce, former New Zealand skills minister in John Key’s conservative government, to do a review of the TAFE sector. Joyce came up with 71 recommendations, including a new National Skills Commission, announced in the April budget as part of a $525 million skills package.

However, the Joyce review did not recommend ending the demand-driven funding model, which enabled the explosion of private colleges subsidised by VET FEE-HELP. Instead, according to Skills Minister Michaelia Cash, the government has put tighter restrictions on providers. Only 187 registered training organisations are now able to access funding from the VET Student Loans program and the government has introduced “a student engagement and progression process in VET Student Loans to ensure students continue to be actively engaged with their provider”.

Robertson predicts that if the Commonwealth government runs with the Joyce blueprint, state and territory governments may go their own way. He says they have reacted to the VET FEE-HELP debacle by increasingly switching support back to their own TAFE networks. Victoria, for example, has had great success by making priority TAFE courses free.

The prime minister seems determined for the Commonwealth to remain agnostic, supporting both private and public training providers. In a recent interview with 2GB’s Alan Jones, Morrison noted that the public TAFE system enrolled only 16 per cent of students in training – a figure overlooking that half the total enrolments are for short courses such as first aid or responsible service of alcohol. When it comes to proper training courses under the Australian Qualifications Framework, TAFEs account for a much larger share.

But even the radio host championed the public system, lamenting the closure and sale of dozens of TAFE campuses around New South Wales. Jones told Morrison: “TAFE is the only institution you can trust to deliver genuine vocational training.” With such a ringing endorsement coming from a prominent conservative such as Jones, the prime minister may need to listen.

This article was first published in the print edition of The Saturday Paper on August 17, 2019 as "Course correction".

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