Fact Sheet - Training Providers - Prices and fees for Vet under Smart and Skilled - 30 July 2013

Based on Pricing VET under Smart and Skilled - Draft Report July 2013

The NSW Government is currently developing key components of Smart and Skilled, which will reform the way government-subsidised vocational education and training (VET) is provided in the state. It has asked the Independent Pricing and Regulatory Tribunal of NSW (IPART) to advise it on one of these components – the price and fee arrangements (see Figure 1).

Figure 1 Elements of Smart and Skilled

We have released our draft report and are seeking comments from stakeholders, which we will consider in making our final recommendations to the Minister for Education and Communities. Submissions are due by 27 August 2013. Late submissions will not be accepted. This fact sheet summarises our advice in 2 areas of particular interest to registered training organisations (RTOs). These are our recommended approaches for:

• setting the prices registered training organisations (RTOs) will receive for providing the training
• determining how much of these prices the student will pay (through student fees) and how much taxpayers will pay (through government subsidies)

1.1 Draft advice on setting the prices to be paid to RTOs

The prices that will be paid to RTOs include 2 price components:

1. The base price for each course and qualification on the skills list, which will cover the costs involved in providing the training required to complete the qualification.
2. The loadings that may be added to the base price to cover the additional costs of providing this training to a ‘high cost learner’.

1.1.1 The base price per course and qualification

Our recommended approach involves setting the base price to reflect the efficient costs involved in providing training that meets the required quality standard to a standard student. We defined ‘efficient costs’ as the type and level of costs an RTO operating in a fully competitive market would incur. We estimated these costs using available information and analysis on the costs incurred by TAFE Institutes and private RTOs. We included teacher costs; course-specific costs (such as facilities, equipment and teaching supplies); recurrent costs (such as administrative staff, utilities); and capital costs (through a margin on the recurrent costs). We excluded any costs that will be covered by other price components (such as loadings) and costs incurred only by TAFE that will be funded separately by the Government.

We defined the ‘required quality standard’ as the standard established by the quality framework (shown on Figure 1). This includes the Training Packages that set out units of competency to be covered in order to complete courses and qualifications in 25 industry sectors.

We defined a ‘standard student’ as one who is not a ‘high cost learner’ (discussed in section 1.1.2 below). By implication, this means a student who is located in a metropolitan area of NSW, and who is not Aboriginal or Torres Strait Islander, does not have a disability, and are not long-term unemployed.
Our analysis of the cost information available to us, and our consultations with stakeholders, clearly show that the cost of providing training for particular courses and qualifications varies widely. This cost mainly depends on 2 factors:

• the specific UoCs that make up the qualification – for example, what equipment and facilities they involve, and the amount of contact teacher hours they require, and
• the level of the qualification – for example, whether it is a Foundation skills course that typically requires 6 months to complete, or an Advanced Diploma that requires 2 years to complete.

Therefore, to ensure that the base price for a particular qualification reflects the specific costs of that qualification, the approach for setting this price must take account of both these factors. Our recommended approach does this by including a variable cost component ($/nominal hour) that reflects the cost differences due to the UoCs that make up the qualification, and a fixed cost component ($/enrolment) that reflects cost differences due to the level of qualification. The base price is derived by applying the relevant variable cost(s) to the relevant UoCs and hours, and then adding the relevant fixed price.

The variable cost component ($/nominal hour)

As there are more than 40,000 UoCs, it was not practical to calculate a variable cost ($/nominal hour) for each UoC. Instead, we combined the UoCs into 25 industry groups based on their cost drivers. We then estimated 25 variable costs ($/nominal hour) that apply to the ‘standard’ UoCs in each of these industry groups. These costs range from $4.25 per nominal hour (for UoCs in the Sport and recreation industry group) to $11.81 per nominal hour (for UoCs in the Vehicle body industry group).

We also estimated 10 variable costs that apply to the ‘high cost’ UoCs within the sfsame 25 industry groups. These UoCs include those that are more costly to deliver, for example, because they require expensive equipment or higher teacher hours. These variable costs include a premium of between 10% and around 35% on top of the cost for a ‘standard’ UoC in the same industry group. They range from $6.39 per nominal hour (for high cost UoCs in the Community Services industry group) to $13.65 per nominal hour (for high cost UoCs in the Printing industry group).

The fixed cost component ($/enrolment)

We estimated 5 different fixed costs ($/enrolment) that apply to the different course and qualification levels. These range from $500 per enrolment (for Foundation skills courses other than Certificate I) to $4,400 per enrolment (for Diplomas and Advanced Diplomas). We also estimated a fixed cost for part qualifications and individual skill sets.

Applying the relevant variable cost(s) to the relevant UoCs and hours

To apply the relevant variable cost(s), we made some assumptions about the specific UoCs that make up each course and qualification, and the hours of training required to deliver those UoCs. We assumed the UoCs are the same as typical combination of UoCs for the course or qualification. We assumed that the hours are the same as the nationally agreed nominal hours for delivering those UoCs.

In the short-term, we think that building base prices based on the typical combination of UoCs per qualification and the nationally agreed nominal hours is a reasonable balance between the need for the approach to produce cost-reflective prices, and the need for it to be relatively simple to understand and apply. However, over time, the Department of Education and Community should collect information on the combinations of UoCs offered by RTOs. If these differ significantly from the typical combinations, it may need to change the approach.

1.1.1 The loadings that may be added to the base price

Our recommended approach for setting prices also involves adding loadings to the base price if the student undertaking the course or qualification is a ‘higher cost learner’. This recognises that not all VET students are the same, so the costs of training can also differ by student.

We have defined higher cost learners as students who are located in a regional or remote area of NSW, and/or are Aboriginal or Torres Strait Islander, have a disability, or are long-term unemployed. We set the level of the loadings to reflect our estimate of the average (or typical) additional cost associated with providing training to these students.

Our recommended loadings include:

• A location loading – 10% for students located in inner regional areas, or 20% for students located in outer regional, remote or very remote areas.
• A needs loading – 10% for students who are Aboriginal or Torres Strait Islander, have a disability, or are long-term unemployed.

We consider that the RTO should be able to claim a maximum of 1 location loading and 1 needs loading per student.

1.2 Draft advice on deciding how much of the base price students and the Government will pay

We think the base price RTOs receive for providing the training should be paid partly by the student (through student fees), and partly by the Government (through a subsidy).^[1] Both these parties benefit when students gain VET qualifications. For example, the student is more likely to get a job and earn a higher income, which means the Government can earn higher taxes and pay less in welfare benefits. Therefore, it is appropriate for both to contribute to the cost of providing the training.

For a student’s first post-school qualification, our recommended approach is to set the student fee to reflect 40% of the base price, and set the government subsidy to reflect the remaining 60%. This approach will generally lead to higher student fees, which will mean the Government can subsidise more VET places without increasing its VET budget. At the same time, it will ensure that student fees for VET qualifications are not generally higher than those for comparable university qualifications. This will mean that students choosing between VET and university study are unlikely to be influenced by the relative costs.

For a student’s subsequent qualifications, our recommended approach is to set the student fee to reflect 45% of the base price. We think that the difference between the student fee for first and subsequent post-school qualifications should be small, to recognise the need for a range of pathways, re-skilling and skill deepening.

In both cases, we think that the student fee should be specified as the maximum fee RTOs can charge. This will mean that RTOs can seek to compete by setting lower student fees. For example, this may be possible if RTOs can make further efficiency improvements.

Our recommendations on setting the student fee apply to apprentice and new entrant trainee fees, as well as other student fees. However, the current fees for these students are more heavily subsidised that those for other students. This means that in many cases they will need to increase significantly to reflect the student’s 40% share of the base price. To manage the impact of this on apprentices, new trainees and their employers, we have recommended their fees transition to this 40% share over several years.

We have not recommended any changes to the current eligibility requirements for concession fees and fee exemptions. However, we have recommended that concession fees be charged on a per qualification basis (like base prices). We have also recommended that these fees vary based on the level of the qualification – ranging from $100 for a Foundation course to $500 for a Diploma or Advanced Diploma.

^[1] Note that any loadings added to the base price will be paid entirely through a government subsidy.