Governments should consider funding post-school education through a voucher system where funds go to students instead of institutions, according to a new report by the Productivity Commission.
The report looked at how governments could improve outcomes for all levels of education, and included an interesting proposal to change how TAFEs and universities were funded.
TAFEs and private colleges get cash primarily from state and territory governments, while the student loan system is funded by the federal government.
Universities get funding from the feds based on the number of domestic student places available, and they also fund student loans.
But the Productivity Commission said these funding arrangements might not be achieving the best results for either taxpayers or students.
It said unfair student loan arrangements between unis and TAFEs were stopping people from taking on vocational education and may even be pushing students towards more expensive degrees.
The financial barriers to doing TAFE
Under the current system, most domestic students who take on a bachelor's degree can get an income contingent loan (ICL) from the federal government. That just means they don't have to pay off that loan until they start earning a certain amount of money (currently around $48,300).
But that's not the case for TAFEs and private vocational colleges. Student loans here are only available for some courses, and only for courses that are diploma level or above.
Fewer than half of the 635 diploma courses available in vocational education and training (VET) providers are eligible for student loans. And all VET student loans are subject to a 20 per cent upfront fee.
The Productivity Commission found that the discrepancy may be pushing people towards studying at university, even if their skills and interests lie in the VET sector.
"Financial barriers prevent education uptake for some Australians," the report said, citing Australian Bureau of Statistics data.
"About 7 per cent of all Australians who did not participate in formal study in the past year wanted to, but could not, with one-third of them listing financial barriers as a reason for this."
"Two-thirds of these Australians wanted to enrol in a qualification below the bachelor level, suggesting financial barriers are greater for vocational than higher education."
The report said that undertaking further study isn't just good for an individual, it's good for the nation's economic development. But it says that the current system might be pushing people in the wrong direction.
"Poorly targeted funding can lead to students studying courses that are a poor fit, resulting in lower completion rates, lifetime earnings, and productivity growth."
A radical change to the way uni and TAFE courses are funded
First, the Productivity Commission said student loans should be considered for courses below the diploma level.
"Expanding loan access for vocational education and training (VET) students at the Certificate III and IV levels would reduce barriers to participation and reduce distortions for students choosing between VET and higher education," the report said.
But it warned that the VET sector needs to be mindful of rorting — a problem that dogged the former student loan scheme.
And the Productivity Commission is considering a radical change to the way university and TAFE courses are funded.
Instead of giving money to educational institutions, the Productivity Commission is tossing up whether students themselves should get a set amount to study, and they can choose the mix of where and when they learn.
"Options for more contestable funding could include a move toward delivering subsidies directly to students, for example as a voucher-style entitlement, rather than funding flowing directly to education providers, as is the case under the status quo," the report said.
"For example, all VET students could be given access to a voucher to access education, equivalent to some or all of the subsidy that would otherwise have gone to the provider, redeemable once they enrolled in a course. Likewise, those students currently deemed eligible to attend universities could access a voucher."
The Commission said this funding model could stimulate competition between institutions and between unis and TAFEs, which it says isn't happening under the current system.
"Funding that follows the student (rather than being allocated directly to providers) might allow for greater flexibility for students to move between providers and the two sectors, as well as enhancing competition across the tertiary sector as a whole."
The report is an interim report — which means it doesn't have recommendations just yet. All options are on the table, and stakeholders can have their say on them.
They've got until the end of October to make submissions, before the final report is handed down in February next year.
