Vocational Training Rorts Show Education And The Free Market Make A Bad Mix

With every new scandal the argument for opening public funding to for-profit providers has another nail hammered into it. It’s time to bury this policy coffin, writes Ben Eltham.

Another week, another scandal in vocational education.

This time it was the news that the Australian Competition and Consumer Commission is investigating private college the Phoenix Institute.

Phoenix is accused of signing up students to courses they don’t intend on studying in return for inducements like free laptops. The government forks out via its FEE-HELP subsidies, and the college enrols the phantom student and makes off with the cash.

The victims are the students conned by the scam. They get a government student debt that in many cases they will never repay, for a course they will never complete. The taxpayer foots the bill.

The Phoenix Institute’s scam appears highly evolved. The ACCC alleges that Phoenix enrolled more than 9,000 students to FEE-HELP Diploma courses, costing them between $18,000 and $21,000 per course. The tactics included aggressive door-to-door sales. Such was the scale of the dishonesty, most students were enrolled in double-diplomas, allowing Phoenix to effectively double up on the amount it gouged from the taxpayer.

That scam is costing the Treasury hundreds of millions, perhaps billions. Phoenix appears to have taken as much as $106 million from the federal government in 2015 alone, according to the ACCC.

Phoenix is far from the only rorter. Tales of shonky colleges abound, many of them uncovered by Fairfax’s Michael Bachelard and Labor’s Kim Carr.

Just this week The Age carried the story of a Melbourne job seeker offered a job as a “careers counsellor” at a Victorian education broker.

Of course, he wasn’t really counselling people at all. “It was a call centre sales role,” Liam Hyland told Fairfax’s Henrietta Cook. “We were selling diplomas to people that I believe had been responding to fake job advertising on Seek.com or other jobs websites, so they were all quite vulnerable people.”

Hyland was given a target of meeting one sale per day. “I felt it was taking advantage of people to try and push them into a diploma that costs upwards of $20,000 in a 20-minute phone call.”

Such is the demand from training organisations accessing FEE-HELP, government payments to the sector are doubling each year. A recent government Regulatory Impact Statement for FEE-HELP for the VET sector found that student loans rose from $699 million in 2013 to a whopping $1.76 billion in 2014 – an increase of 157 per cent.

Sound familiar? Vocational education has become one of the biggest rorts in the nation. It’s been happening right under our noses.

As early as 2012, New Matilda was reporting on the blow out in vocational funding in the Victorian state system, after John Brumby’s Labor government deregulated vocational education and trainingin 2010.

Victoria allowed private colleges to access state training subsidies previously quarantined for TAFEs. The reforms were opposed by education unions at the time on the grounds that quality would suffer and rorts would ensue. As Mary Bluett, the veteran state secretary of the Australian Education Union told New Matilda back in 2012, “there was no regulator capable of checking the quality of private providers that moved into the space.”

The result was a free-for-all. Fly-by-night training colleges set themselves up to skim off state subsidies for dubious courses of little value. In one notorious example, enrolments in courses for fitness instructors blew out by 2000 per cent.

Prominent policy expert Leesa Wheelahan called the Victorian reforms “a lesson in how not to reform vocational education.” But no-one was listening: under Kevin Rudd (when Julia Gillard was education minister), the federal government opened up vocational education and training to FEE-HELP loans.

Sure enough, the result has been a free-for-all. A Senate Inquiry into the sector reported last month. It found “evidence of rampant abuse.”

In one particularly disturbing submission, disability advocates Inclusion Australia told the Senate Inquiry that “we have spruikers for [training organisations]outside our building looking to pick up youth with significant intellectual disability and sign them up for very expensive and totally unachievable qualifications.”

The Redfern Legal Centre told the Senate Inquiry that brokers for some providers were going door-to-door in public housing blocks, as well as targeting people on Centrelink.

Another submission told of a group of pensioners at a shopping centre being signed up to diploma courses in return for free laptops.

The rorts have ranged from obviously dubious outfits like Phoenix to superficially respectable listed corporations such as the now-defunct Vocation.

Vocation was a slick corporate outfit chaired by former Labor luminary John Dawkins and run by charismatic businessman Mark Hutchinson. It grew rapidly, buying a swag of private colleges and registered training organisations, and gorging itself on FEE-HELP cash.

Vocation’s business model had little to do with education, and everything to do with profit. Public subsidies for training were booked as revenue, with courses delivered for less than the subsidy by subcontractors in a process known as “auspicing”. Auspicing allowed Vocation to grow its bottom line without the need to invest in costly classrooms, libraries, and teachers.

The house of cards collapsed last year when the Victorian Department of Education started investigating Vocation’s educational standards. After an audit found that Vocation should repay $19 million in state subsidies the company’s share price cratered.

Vocation’s shiny website was still online as of today. “Thousands of people across the country are making their lives better every day with our courses,” it proclaimed. “They’re getting jobs being promoted, even changing their careers entirely.”

There may be a few other people changing their careers entirely, however: Vocation’s managers and directors. The firm officially called in the administrators this week. As many as 12,000 students have been left in limbo, with 180 jobs in jeopardy.

It should be obvious what’s driving the vocational education fiasco: poor regulation. The Senate Inquiry found that the regulator, the Australian Skills Quality Agency, simply doesn’t have the legal powers and the financial resources to adequately monitor the sector.

Economist John Quiggin put it best: “ASQA is a proven failure,” he wrote in a submission. “It needs to be scrapped and its functions turned over to a body with some real teeth and a willingness to defend the interests of students and the public purse, rather than being a captive of the industry it is supposed to regulate.”

It’s hard to disagree. Regulating quality is difficult enough in the university sector, where there are only 39 institutions and relatively high standards of transparency. Even so, one in seven university students drop out.

In comparison, the VET sector is a Darwinian jungle, with fly-by-night colleges gobbling each other up in an ever-changing merry-go-round of new logos and livery. If the regulator is only now catching up to shonks like Phoenix, what chance do prospective students have?

The common thread behind the rampant rorting is privatisation. We’ve seen it in childcare, with ABC Learning, and we’re seeing it in the VET sector, with Phoenix and Vocation (and let’s not forget our old friends at the Whitehouse Institute of Design).

Some goods and services are not very well suited to the free market. Education is a classic example. It is by nature a mixed public-private good, in which the benefits that accrue to individual students are balanced against the benefits to society as a whole. As a result, education quality is hard to measure, and difficult to regulate.

Whenever human services are privatised, the risk of rorting is always present. And that’s exactly what’s happened in vocational education: while the sharks have walked away with millions, the taxpayer has been left to foot the bill.

It should be a signal to anyone favouring further privatisation of our university system. But will the government listen? New Education Minister Simon Birmingham has a lot of homework to do.

At the very least, Birmingham should turn off the tap. For-profit colleges should no longer be paid up-front when they enrol students, but rather when those students complete their courses. In the longer term, subsidies to profit-making colleges should be abandoned altogether.

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