Senate

Revised Explanatory Memorandum

(Circulated by authority of the Minister for Small and Family Business, Skills and Vocational Education, Senator the Honourable Michaelia Cash)

Outline

The principal purpose of the Education and Other Legislation Amendment (VET Student Loan Debt Separation) Bill 2018 (Bill) is to separate VET student loan debts from other forms of Higher Education Loan Program debts (HELP debts) and establish VET student loans as a separate income contingent loan administered under the VET Student Loans Act 2016 (VSL Act). The amendments in the Bill operate together with amendments in the Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018.

The Bill also amends the VSL Act to allow the courses and loan caps determination made by the Minister by legislative instrument under subsection 16(1) of the VSL Act (currently the VET Student Loans (Courses and Loan Caps) Determination 2016)), to incorporate, by reference, any matter contained in an instrument or other writing as in force from time to time.

VET student loans

Vocational education and training (VET) is central to Australia's economic growth, business opportunities and employment outcomes for students. Income contingent loans support Australians to access higher level VET qualifications.

The VSL Act, which commenced on 1 January 2017 as a part of a package of legislation, established the VET Student Loans program, a new Commonwealth program for income contingent loans for students engaged in higher level VET, to assist students with payment of their tuition fees. The new VET Student Loans program replaced the VET FEE-HELP scheme (which operated under Schedule 1A to the Higher Education Support Act 2003 (HESA)).

Under the VSL Act, the Secretary of the responsible Department (currently the Department of Education and Training) may approve VET student loans for eligible students for approved courses, and the loans are used by the Secretary to pay tuition fees for the students.

Under the current arrangements, payments of amounts of VET student loans give rise to 'VET student loan debts' under HESA. VET student loan debts are a type of HELP debt and are therefore dealt with in the same way as other HELP debts under Chapter 4 of HESA. Specifically, VET student loan debts are incorporated into, and are factored into the calculation of, a person's accumulated HELP debt, which can be repaid through voluntary repayments or compulsory repayments (based on the person's income) through the tax system.

Separating VET student loans debt from HELP debt

Currently, there is limited capacity to measure the sustainability of the VET Student Loans program because a debtor's HELP repayments are not disaggregated by loan type. Irrespective of whether the debt applies to HECS-HELP, FEE-HELP, SA-HELP, OS-HELP, or VET FEE-HELP assistance (which are other forms of HELP assistance available under HESA) or VET student loans, loan repayments are made towards a single, aggregated HELP debt.

This creates difficulties in that, where a person has received loans under more than one form of HELP assistance (for example, a person has received both HECS-HELP and VET student loans), it is not possible to obtain accurate data on what proportion of which form of HELP assistance has been repaid. Similarly, where a HELP debt is not being repaid, it is not possible to identify the form of HELP assistance the debt relates to.

This Bill separates VET student loan debts from other forms of HELP debts by moving the legislative basis for VET student loan debts from HESA into the VSL Act. In effect, this provides greater transparency of repayment rates for VET student loans and more accurate information to inform future policy decisions. The separation of VET student loan debts from other forms of HELP debts also enables more timely, transparent and accurate reporting on the fiscal sustainability of the VET Student Loans program. Further, it supports greater public accountability of the VET Student Loans program.

To achieve the separation of VET student loan debts from other forms of HELP debts, Schedule 1 to the Bill amends HESA and the VSL Act to:

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provide that debts incurred under section 137-19 of HESA as in force at any time before 1 July 2019 are pre-1 July 2019 VSL debts. These debts continue to be administered as HELP debts under HESA and are subject to the repayment provisions in Chapter 4 of HESA

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provide that if the Secretary uses an amount of a VET student loan approved under the VSL Act to pay tuition fees for a person on or after 1 July 2019, the person incurs a debt under the VSL Act. These debts are known as VETSL debts and are administered under the VSL Act

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insert provisions in the VSL Act that are modelled on Chapter 4 of HESA to provide for the calculation and repayment of VETSL debts. The repayment thresholds, repayment rates, renewable HELP balance and indexation with respect to VETSL debts are the same as the repayment thresholds, repayment rates, renewable HELP balance and indexation for HELP debts under HESA

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provide that a person must start repaying a debt in relation to a VET student loan once they have finished repaying any HELP debts

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provide that, consistent with existing arrangements for HELP debts, persons residing overseas and who have a VETSL debt are required to make repayments in respect of those debts by paying a levy to the Commonwealth (refer also to the Student Loans (Overseas Debtors Repayment Levy) Amendment Bill 2018).

Schedule 1 to the Bill makes consequential amendments to other Commonwealth legislation, including taxation legislation and legislation establishing other income contingent loans, to:

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reflect the establishment of VET student loans as separate income contingent loans

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ensure that VETSL debts are repaid to the Commonwealth after a person has finished repaying any HELP debts, but before any debts relating to other income contingent loans and forms of student financial assistance.

VET Student Loans Courses and Loan Caps Determination

VET student loans are only available for courses which have been approved by the Minister through a courses and loan caps determination made by the Minister by legislative instrument under subsection 16(1) of the VSL Act (currently the VET Student Loans (Courses and Loan Caps) Determination 2016 (Determination)). The objective of the Determination is to list courses that have high national priority, align with industry needs, contribute to addressing skills shortages and lead to employment outcomes.

For a course to be added to the Determination it must meet a defined methodology. The methodology for approved courses is that courses must be current, and be subsidised by two state or territory lists, or be science, technology, engineering or mathematics courses, or be required for a licensed occupation.

The Determination is updated twice yearly. Once the Determination is made, VET student loans are approved only for the courses specified on the Determination. Courses are specified by reference to their course code. If a course becomes superseded or reaccredited, VET student loans cannot be approved for the new course until the next update to the Determination.

Schedule 2 to the Bill enables the resolution of this problem, by providing for the Determination to reference the National Register of VET.

The National Register, as defined in section 3 of the National Vocational Education and Training Regulator Act 2011, is a register that contains the most up to date information about VET courses and their status.

Schedule 2 to the Bill amends section 16 of the VSL Act to enable the Determination to incorporate, by reference, any matter contained in an instrument or other writing as in force from time to time. This lays the groundwork for the Determination to be amended, to refer to listed courses and new courses that replace those that become superseded or reaccredited, as specified on the National Register.

Referring to the National Register in the Determination will ensure the instrument reflects the dynamic nature of the VET system and retains its currency in relation to courses that are superseded or reaccredited. It is not possible for the Minister when making the Determination, to predict what courses will become superseded or reaccredited enough in advance, nor will those courses be allocated a course code until they are approved.

The National Register already has clear linkages between current and superseded or expired Training Packages. This ensures that student loans will only be able to be approved for courses that supersede Training Package courses on the National Register. Further changes to the National Register are being made to ensure accredited course updates are also clearly indicated. These changes are expected to be made before the current Determination is updated to refer to the National Register.

This change, enacted through Schedule 2 to the Bill, will mean students can be approved for VET student loans for courses that supersede those on the Determination or when a course is reaccredited without having to wait for the Determination to be updated.

Financial Impact Statement

The measure to separate VET student loans debts from other forms of HELP debts will cost $2.1 million over four years from 2017-18 for the Department of Education and Training to support the required IT changes at the Australian Taxation Office and Department of Education and Training.

These figures were published in December 2017 in the Mid-Year Economic Fiscal Outlook 2017-18. A breakdown of the costs (in underlying cash) over this period is as follows: