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EDUCATION SERVICES FOR OVERSEAS STUDENTS (REGISTRATION OF PROVIDERS AND FINANCIAL REGULATION) AMENDMENT BILL 1998

1998


THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA


SENATE












EDUCATION SERVICES FOR OVERSEAS STUDENTS (REGISTRATION OF PROVIDERS AND FINANCIAL REGULATION) AMENDMENT BILL 1998




EXPLANATORY MEMORANDUM


















(Circulated by authority of the Minister for Education, Training and Youth Affairs the Hon Dr David Kemp MP)

ISBN: 0642 377197

EDUCATION SERVICES FOR OVERSEAS STUDENTS (REGISTRATION OF PROVIDERS AND FINANCIAL REGULATION) AMENDMENT BILL 1998

OUTLINE

The Education Services for Overseas Students (Registration of Providers and Financial Regulation) Amendment Bill 1998 amends the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Act 1991 (ESOS Act).

The principal Act, the ESOS Act, is the key national element of a cooperative approach between the Commonwealth, State and Territory governments and industry for the regulation of the international education and training services industry. The ESOS Act provides assurances of education quality and financial protection to international students studying in Australia. It does so by registering providers of international education and training, based on State or Territory approval and accreditation, and by imposing financial conditions on private education providers.

There was universal agreement from stakeholders during the 1996 review that continuation of a cooperative model was appropriate for the future regulation of the industry. As a result there was a general consensus across the industry that the ESOS Act has significantly contributed to the global perception of the Australian industry as delivering quality outcomes for overseas students; the key determinants of quality being course approval/accreditation, financial probity and ethical conduct of providers. Consultations with stakeholders during April and May indicated that there is overwhelming strong support for continuation of the ESOS legislation.

Australia has experienced a decade of highly successful engagement in education export. However, a range of non-economic factors has contributed to a decline in the number of overseas student visas issued offshore and recent dramatic currency movements in a number of key Asian markets are believed to be most responsible for the declining growth rate in recent months. Earlier forecasts of longer term growth in the industry are probably now unattainable.

The challenge facing the Australian education export industry is severe. The three year extension to the Act’s sunset clause proposed in the Bill will maintain the stable domestic environment during a time of economic volatility in major source markets. The extension will also allow time for the Commonwealth, State and Territory governments and industry to focus on the future regulatory requirements of the industry, including the extent of industry self-regulation, taking account of the experiences during this volatile period.

FINANCIAL IMPACT

Nil.

REGULATION IMPACT STATEMENT

A Summary
This Regulation Impact Statement (RIS) examines the proposed legislative amendment under the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Amendment Bill 1998 to extend the sunset clause in the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Act 1991 (the ESOS Act) by three years to 1 January 2002. The RIS examines regulatory options to deal with the risks posed to the Australian international education services industry by disreputable providers, and draws on a review of the current arrangements undertaken in 1996 and consultations in April and May 1998. The conclusion of the RIS is to support the extension of the sunset clause.
B Problem Identification

Three major problems which have the potential to damage Australia’s international reputation emerged in the late 1980s/early 1990s. The problems are:

• how to ensure that the courses provided for the education and training of overseas students in Australia on student visas are of a high standard and that providers are reliable;

• how to ensure that overseas students get the education and training for which they have paid; and

• how to ensure that taxpayers’ funds are not required to recompense international students who may have been let down by individual education and training providers.

The ESOS Act was designed to address these concerns. The industry recognises that these problems still exist and that a case for some form of regulation, whether government or industry based, can be strongly argued.

Both problems are assessed as potentially having a major impact on the Australian industry and Australia’s international reputation.

B1 The International Environment

International education and training is a vital Australian export industry which currently earns $3.3 billion per annum, over half going to businesses outside the education sector. The industry also contributes significantly to the Australian economy generally, through the creation of jobs and the input to domestic taxation, running into several hundred million dollars. Further, the industry plays a key role in reinforcing positive perceptions of Australia as a trade and investment partner with future opinion formers and leaders throughout our region. The industry is supported through strategic participation by Government in bilateral and multilateral activities and targeted programme assistance.

In addition to direct economic benefits, Australia gains major intangible benefits from the international student programme. International students gain insights into Australian culture, law, institutions and business practices, which fosters a better understanding of Australia overseas. Australians in turn benefit from these students’ contributions to teaching and research, from the exchange of international perspectives and the diversification of fields of study in response to international demand.

An overseas student is a student who is in Australia on a student visa issued under the Migration Regulations 1958. The Migration Act 1958 and associated Regulations require all applicants for student visas to provide evidence that they are enrolled with a provider and in a course registered on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS). CRICOS is maintained under the ESOS Act. Domestic students are not covered by the protection of the ESOS Act, but may avail themselves of domestic consumer protection laws. (Consumer protection legislation is discussed below at B3). In practice many providers choose to maintain separate Notified Trust Accounts for the prepaid course money of domestic purchasers of education and training services parallel to the ESOS Act requirements for overseas students’ prepaid course money.

The 1980s saw significant growth in the number of overseas students choosing Australia as a study destination and a consequential increase in the number of providers of education and training services to those students. By 1998 the number of providers had grown to more than 1000. Of these, about half are administered by State/Territory education authorities or are entitled to receive Commonwealth recurrent funding. These providers, who are subject to Commonwealth and State audit requirements under their funding arrangements, for example, the rigorous government financial accountability arrangements under the Higher Education Funding Act 1988 and State Grants (TAFE Assistance) Act 1989, are exempt from the financial and tuition guarantee requirements of the ESOS Act.

The majority of providers are privately operated. The size of institutions ranges from single establishment providers (some 60% of private providers) to larger scale, multi-establishment providers. In recent years there has been a trend towards provider expansion with operations across State/Territory borders and the take over of smaller institutions by larger providers. Some larger providers have established joint venture or twinning arrangements with providers in other countries. Multinational education and training providers have also entered the Australian market, delivering courses both on-shore and off-shore.

While some providers offer only one specialised course to overseas students, most providers offer a range of courses from non-degree awards to Diploma and Degree courses. For example, English Language Intensive Courses for Overseas Students (ELICOS) colleges specialise in English language training and higher education and vocational education institutions offer Diploma and higher qualifications.

Generally, the higher education sector is the most expensive sector of study, followed by vocational education and then school education. The highest course cost is for students studying at the postgraduate level who, on average in 1997, paid $13,934 per year. Students studying at the undergraduate level paid an average of $12,426, with students studying vocational foundation courses paying $10,658. Secondary school students paid $9,090 per year, while students studying in primary school paid, on average, $6,574 per year.

ELICOS course costs are not directly comparable to other course costs as their average duration is only 25 weeks. On average, students studying ELICOS courses in the vocational education sector paid $8,716 per course making it the most expensive of all ELICOS courses ahead of both private ELICOS ($8,567) and government ELICOS ($7,990). (“Overseas Student Statistics 1997”, Australian International Education Foundation 1998).

The international education programme attracts overseas students primarily from countries in the Asian Region - they account for 77% of the overseas student population. ELICOS actively market study/tourism programmes. This programme permits holders of temporary entry permits to Australia to study in courses for up to 3 months. Most participants in study/tourism come from South Korea, Indonesia and Malaysia.

The distribution of students by country of origin across the different types of institutions can be seen in Table 1, below.

The most common age group for students is between 20 and 24 years with 45 percent falling into this age group. Overall there are slightly more female (52 percent) than male students.

Types of Course Undertaken by Overseas Students

10% post graduate studies (Graduate Certificate, Graduate Diploma, Masters Degree and Doctorate)
30% Undergraduate/ Bachelor Degrees
22% Award Courses (Diploma, Advanced Diploma and Certificate Courses)
10% in Secondary Schools
26% in ELICOS courses
4% in ‘other’ courses (non-award courses, foundation courses and others)

Type of Institution Overseas Students Enrolled in

40% higher education
27% vocational education
22% ELICOS
11%secondary schools

Source: “1997 Survey of International Students Studying in Australia”, Australian International Education Foundation, 1998.

Table 1

Distribution of Students from the Main Source Countries Across Institution Type

Source: “1997 Survey of International Students Studying in Australia”, Australian International Education Foundation, 1998.

B2 Comparison of Australia’s Major Competitor Countries

An analysis of the higher education sector shows that, in terms of overseas student numbers, Australia is ranked third in the English speaking world behind the United States and the United Kingdom and seventh worldwide behind the United States, France, Germany, the United Kingdom, the Russian Federation and Japan (UNESCO figures cited in 1997 Survey of International Students Studying in Australia”, Australian International Education Foundation, 1998.)

With the exception of Singapore (where Australia is the top provider) and Malaysia (where the United Kingdom is the top provider), the United States is the most popular destination for international students from all of Australia’s top 10 source countries. Australia ranks second behind the United States in Hong Kong, Indonesia, India, Thailand and China; and third behind both the United States and the United Kingdom in Taiwan, South Korea and Japan. Australia outranks Canada and New Zealand in all of Australia’s top 10 source countries.

There has been a dramatic increase in the number of students studying in Australia: from 21,118 in 1988 to 151,464 in 1997 (Department of Employment, Education, Training and Youth Affairs (DEETYA) Overseas Student Statistics 1997). Current indications are that the total number of overseas students in 1998 will exceed the 1997 figures, with the biggest growth being in the higher education sector.

B3 The Experience of the late 1980s

The international student programme was put under severe pressure in the late 1980s/early 1990s by the closure of a number of private institutions. The closures resulted from the inability of a number of private providers to refund prepaid course fees to students who were refused student visas under tightened entry measures applied by the Department of Immigration and Multicultural Affairs (DIMA) in response to evidence of non-compliance with student visa conditions by students, predominantly from the People’s Republic of China. The backlog of student visa applications resulting from the evacuation of DIMA and DEETYA officers from the Australian Embassy in Beijing post-Tiananmen Square also had an impact on the cash flow of some colleges. The Government was concerned at the potential damage to Australia’s commercial reputation as a reliable provider of quality education and training services and responded by introducing the ESOS Act.

The Government’s concern was summarised in the report of the Senate Standing Committee on Employment, Education and Training, “Inquiry into the operation of the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Act 1991 (ESOS Act), December 1992”:

“Australia’s reputation as a provider of educational services to overseas students was threatened in the late 1980’s by a combination of events. These included:

• the emergence of some unscrupulous providers in the private education sector;

• some evidence of unevenness in the quality of both services provided and the support structures for students;

• the financial collapse of several private institutions and the consequent adverse publicity in overseas countries about the problems of students who lost money as a result.

The ESOS Act was therefore designed to address the legitimate concerns that had been raised about some educational institutions that were dealing with overseas students. The Act was intended to protect provider and course quality through registration of institutions and to protect student funds held by providers.

The Act also signalled to education providers and potential overseas students that the Government was serious about remedying problems arising from the failure of institutions and the loss of funds by students and preventing any recurrence of such problems in the future.”

A special task force in DEETYA was established in July 1990 to implement a refund programme for international students who had pre-paid fees but were not given visas, and to recover taxpayers’ money from those institutions on whose behalf the Commonwealth had made refunds to students. As at 31 January 1996, the Commonwealth had recovered $4.566 million of the $66.729 million paid in refunds to students.

In 1993 two liquidated colleges closed in Western Australia with no funds held in the special accounts which were styled “trust accounts”. The Commonwealth provided $1.3 million in assistance to 432 students from one College. (No information is available on how many students were actually assisted from the other college, although the Australian Council of Private Education and Training identified some providers who were willing to offer places to some of the displaced students).

The events of 1993 evidenced that the special account and insurance guarantee arrangements were not sufficient to guarantee the protection of overseas student’s pre-paid course money and the tuition for which they had paid. Accordingly, in consultation with States/Territories and the industry, the ESOS Act was amended to require all private (“non-exempt”) providers to maintain notified trust accounts and to join a Tuition Assurance Scheme or to make another approved arrangement which has the primary objective to ensure overseas students receive the education and training for which they have paid.

The ESOS Act specifically protects those overseas students (the consumers) who prepay course money to Australian providers and who are entitled to a partial or full refund. Under the ESOS Act, providers are required to maintain the prepaid course money in Notified Trust Accounts (NTA) and to refund the money to the student if the student does not obtain a student visa or if the provider or student default. The ESOS Act also allows providers and students to enter into refund contracts. The student is entitled to recover any debt due by action in a court of competent jurisdiction. Most importantly as far as the student is concerned, should a provider default, the Tuition Assurance Scheme (TAS) Operator places the student in an equivalent course to the one for which they have paid. The student does not have to pay additional tuition fees.

In practice, complaints concerning refunds are directed to DEETYA and, if the complaint is sustained and a provider fails to refund the student, the provider’s registration may be suspended from CRICOS for failure to comply with a financial requirement of the ESOS Act. This means the provider can no longer recruit or enrol overseas students or take any money from overseas students. The resolution of the complaint is generally quick and effective. In addition, the ESOS Act provides for cancellation of a provider’s registration if the provider has engaged in misleading or deceptive behaviour in the recruitment of overseas students.

Overseas students have standing under the Trade Practices Act (TPA) for actions brought under section 52 - misleading or deceptive conduct. The Australian Competition and Consumer Commission could also take representative action on behalf of groups of students. Sometimes remedies under the TPA may be difficult for overseas students to access if they are not in Australia, if they have insufficient visa validity or costs are prohibitive. Action for breach of contract is available to overseas students, but there are privative international law questions, for example, where the action will be brought and how the remedy will be enforced.

The ESOS Act provides a quick and low cost alternative to legal action under the TPA or for breach of contract, can be accessed by students either on shore or off shore and, with the TAS arrangements, can place a student quickly in an equivalent course. Domestic students, as noted above, are not subject to the protections of the ESOS Act, but may avail themselves of the appropriate State/Territory consumer protection legislation and the TPA.

There are high levels of compliance with the requirements of the ESOS Act for financial probity and ethical marketing by providers. Compliance monitoring in 1996-97 led to only six suspensions and two cancellations of providers for breaches of the ESOS Act. Following advice from State and Territory education authorities, 18 providers had their registrations cancelled, and two providers were suspended for breaches of State or Territory legislative requirements.

B4 Late 1990s Asian Recession

At the current time Australia faces a new set of circumstances which are a result of economic recession in key Asian markets. This will manifest itself as increased downturn in demand than under normal commercial business cycle impacts. In this climate of economic volatility the requirement for continued confidence and maintained stability in Australia’s international education industry is particularly important.

C Objectives of Government Action

C1 The outcomes sought in relation to the problems identified at B above are:

(a) ensuring that the courses provided for the eduction and training of overseas students in Australia on student visas are of a high standard;

(b) ensuring that the pre-paid course money (fees) of overseas students are used by providers for that purpose; and

(c) ensuring that taxpayers funds are not required to recompense overseas students who have suffered financial loss through the actions of a disreputable provider.

C2 Is there a regulation/policy currently in place?

In relation to outcome (a) above, providers and the education and training courses they intend to offer to overseas students must be firstly accredited and approved by the appropriate State/Territory authority. The Ministerial Council on Education, Employment, Training and Youth Affairs (MCEETYA) National Code is intended to form the basis of State and Territory legislative policy and administrative requirements for the approval of providers offering courses to overseas students and for industry sector codes of ethical practice. MCEETYA, which comprises Commonwealth, State and Territory Ministers of Education, endorsed a revised “National Code of Practice in the Provision of International Education and Training” in November 1994.

The specific legislative provisions for accrediting and approving providers may differ between authorities. In general terms, providers must achieve and maintain high standards of practice as measured by State and Territory benchmarks of quality standards, the educational qualifications of teachers and the administrative facilities of the provider institution.

Once providers and courses are approved and accredited, State/Territory authorities notify DEETYA to admit them to CRICOS. CRICOS is established under the ESOS Act. The ESOS Act provides the specific prohibition on offering or providing courses to overseas students unless the provider and courses have been admitted to CRICOS. Providers and courses can only be admitted to CRICOS on the advice of the relevant State/Territory authority.

Under the Migration Act 1958 and Regulations an applicant for a student visa must nominate a CRICOS-listed provider and course. Once in Australia, overseas students must maintain enrolment with a provider and in a course registered on CRICOS. To maintain registration on CRICOS, providers must comply with the requirements of the relevant State/Territory authority and the ESOS Act.

In relation to outcome (b) above, providers who are entitled to receive Commonwealth recurrent funding or are administered by a State/Territory education authority are required to abide by the audit requirements of their funding arrangements (which may be Commonwealth and/or State). The ESOS Act exempts these providers from the financial and tuition guarantee requirements of the ESOS Act (called “exempt providers”).

All other providers are called “non-exempt providers” and are required under the ESOS Act to place overseas students’ pre-paid course money into Notified Trust Accounts and to comply with TAS requirements.

Notified Trust Account (NTA)

Details of a provider’s NTA are required under the ESOS Act to be provided to DEETYA, withdrawals from the NTA must only be made in accordance with Regulations made under the ESOS Act, and providers submit annual audited returns of their NTAs. The ESOS Act contains provision for refunds to students in the circumstance where a provider or a student defaults.

Tuition Assurance Scheme (TAS)

• The TAS offers alternative tuition placement to overseas students who are affected by a provider closing, defaulting or ceasing to offer a course in which they are enrolled. Providers must make tuition guarantee arrangements before they enrol students in their courses registered on CRICOS. These include membership of a TAS, an insurance policy, bank guarantee or parent organisation guarantee which protects tuition fees. If a provider has no students enrolled or a provider does not receive any course money, either directly or indirectly, from overseas students (for example, where all students are on fully funded scholarships or have their expenses paid by their employers) a provider may claim exemption from the TAS requirements of the ESOS Act on that ground.

• TASs are operated by peak industry bodies. Approved TAS Operators must have arrangements in place to ensure that:

∗ students affected by the closure/default of a provider are placed with member-providers in equivalent courses registered on CRICOS;
∗ the TAS operator meets the administrative costs of placing displaced students;
∗ students are not required to pay any additional tuition fees in respect of that part of the course for which they have already paid.

• TASs are approved by the Minister under the ESOS Act. There are currently eight approved TASs. These are:

Australian Council for Private Education and Training
Australian Council of Independent Business Colleges
English Language Intensive Courses for Overseas Students (ELICOS) Association
Melbourne College of Divinity
Sydney College of Divinity
South Pacific Association of Bible Colleges
Western Australian Private Education and Training Industry Association
Aviation Training Australia Incorporated

• Costs of TAS membership are borne by TAS members. These costs are not known to DEETYA and will depend on the size and particular arrangements of the individual TAS.

Whilst exempt providers are not required to meet the financial and tuition guarantee requirements of the ESOS Act, in practice some exempt providers choose to maintain membership of a TAS, and some also opt to maintain NTAs.

In relation to outcome (c) above, the government’s action in providing financial assistance in response to the events of the late 1980s and early 1990s were “once-off” acts, and not made under any specific legislative responsibility. The TAS and NTA requirements of the ESOS Act now firmly place responsibility for the delivery of the course which has been paid for in the hands of the provider and the industry (through TASs).

C3 The ESOS Act - Developments

Sunset clause

Section 20 of the ESOS Act is a sunset clause which deactivates the Act on 1 January 1999. The sunset clause was extended to 1 January 1997 (in 1993) and to 1 January 1999 (in 1996).

“Roll Back”

The ESOS Act enables the Governor-General to suspend the financial (NTA) and tuition guarantee (TAS) requirements of the Act in a State or Territory if the Governor-General is satisfied that arrangements in place in the State/Territory are sufficient to achieve the purposes of these sections. This is referred to as “roll back” and was put in place to avoid non-exempt providers being forced to meet both State/Territory and Commonwealth reporting requirements which have the same objectives. To date, no State/Territory has agreed to accept “roll back”.

Charges

In the 1996/97 budget, the Government introduced an Initial Registration Charge (IRC)for newly registered providers and an Annual Registration Charge (ARC) for all providers listed on CRICOS as at 1 January each year. These initiatives were effected on 24 April 1997 by the commencement of the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Amendment (No 1) Act 1997 and the Education Services for Overseas Students (Registration Charges) Act 1997.

Calculation of charges for 1998

A provider registered on CRICOS on 1 January 1998 is liable to pay the ARC for 1998 based on total enrolments of overseas students in 1997. An overseas student enrolled in a course with a provider that spans two or more years is counted as being enrolled in each of those years.

The amount of the charge for the year is worked out using the following table, and is based on the total enrolments of overseas students in all courses provided by the provider in 1997.
• overseas students enrolled in courses of less than 26 weeks duration at any time during the year count as 0.5 of an enrolment; and
• overseas students enrolled in courses of 26 weeks or more duration at any time during the year count as 1 enrolment.
Total enrolments are determined by adding together these two sets of enrolment figures. Note: where a registered provider operates from more than one site, the enrolments at all sites are added together.

Payment schedule for 1998

Overseas Students in 1997

Penalties

The following penalties apply to providers who fail to pay the ARC by the due date or who under assess:
• suspension of registration from CRICOS; and
• an interest rate of 20% per year on the amount due and not paid by the due date.
Overdue payments accrue during the period of non-payment with the outstanding amount being carried over to the following year(s). Suspended providers are required to pay a fee of $100 before the registration can be reinstated. ARCs, late payment penalties and reinstatement fees are debts due to the Commonwealth.

Cost Recovery

The IRCs and ARCs were introduced as partial cost recovery measures. The current administrative cost to DEETYA of administering the ESOS Act is approximately $1.9 million. The amount expected to be reimbursed each year through the charges is $0.94 million. The industry was opposed to full cost recovery. The level of cost recovery, agreed to by industry, contributes to approximately 50 percent of total costs.

D Options

The alternative regulatory and non-regulatory measures for achieving the stated objectives are set out below.

Option 1 Voluntary industry self regulation

Peak industry bodies would have responsibility for regulating the behaviour of their members through by-laws, rules of ethical conduct and pronouncements on standards. Industry membership would be voluntary and there would not be a process of legal enforcement. As a result there would be no barriers for entry into the industry, provided that providers meet the relevant State/Territory legislation.

Option 2 Mandatory industry self regulation

Under this option the Commonwealth would require members of the industry to comply with certain standards to participate in the industry.

Mandatory industry self regulation under Commonwealth legislation would require providers to:

• join one of several approved industry associations; and

• adhere to minimum requirements relating to tuition guarantees and refunds.

Option 3 Extension of existing arrangements for three years - a three tier cooperative model

The current framework (this option) is a cooperative model consisting of three tiers of regulation. At the industry level, voluntary industry codes of practice govern provider conduct; State/Territory legislation and policy set requirements for provider and course quality which are pre-requisites to entry into the industry; and Commonwealth regulation under the ESOS Act, extended until 2002, would allow for the continuation of existing financial and tuition assurance protections and current student visa processing requirements set down in the Migration Act 1958 and associated Regulations.

Under this option stakeholders may consider the nature of any future regulation for the industry. Any such future model could be implemented after 2002 or, if legislation permits, phased in before 2002 under transitional arrangements.

Option 4 Existing arrangements plus “roll back”

Roll back involves the suspension of the financial and tuition guarantee provisions under section 9 of the ESOS Act, where State/Territory arrangements are in place to achieve the same purposes. Arrangements which appear to meet the purposes of all financial regulation sections of the ESOS Act are in place in four States/Territories. No TAS arrangements are in place in any State/Territory.

The ESOS Act with an extended life and widely implemented roll back would involve State and Territory approval and registration of courses, involving both education and training quality and financial protection for students (possibly applying to both domestic and overseas students). The industry would adopt self regulation through TASs in terms of membership requirements and ‘last resort’ protection for overseas students.

Commonwealth regulation through the ESOS Act would consist of the national register (CRICOS), legal authority for TASs and a backstop for State and Territory regulation.

Option 5 A simplified cooperative model - the 1996 Review

In 1996 DEETYA commissioned Ernst & Young to undertake a review of the ESOS Act and, in consultation with stakeholders, develop recommendations concerning the sunset clause and future regulation of the industry. The Review proposed a simplified cooperative model in response to consultations on the range of regulatory models and taking into account industry concerns about the compliance costs for non-exempt providers in meeting the financial requirements of the ESOS Act.

Under this option the Commonwealth would legislate for and monitor the effectiveness of a national framework of quality and financial control and maintain a national register of approved providers. In consultation with stakeholders, the Commonwealth would develop and implement simplified financial regulation, with primary regulatory roles for the States/Territories and the industry.

State/Territory authorities would accredit or oversight accreditation processes for providers and courses and submit approved providers for admittance to the national register. They would monitor the extent to which providers fulfil their conditions of registration and accreditation and monitor compliance by providers with relevant financial standards. Providers and their Industry Associations would to the maximum extent feasible, be responsible for financial and/or quality requirements for registration, simplified where possible. (The practical details of reduced compliance costs to industry were not provided by industry or fully developed in the 1996 Review.)

Option 6 Sole regulation by States and Territories

Under this option regulation would be left solely to the States and Territories.

Option 7 Sole regulation by Commonwealth

Under this model, sole regulatory responsibility would rest with the Commonwealth.

Options 6 and 7 are not viable options. Option 6 is inconsistent with Commonwealth responsibilities for international trade relations. Option 7 is inconsistent with State/Territory responsibilities for regulation of domestic education and training.

E Impact Analysis

The stakeholder groups affected by the regulatory environment are overseas students, current and potential service providers, industry associations, State/ Territory education and training authorities, Commonwealth agencies (such as DEETYA, DIMA and AUSTRADE). The community generally is also a stakeholder group, as taxpayers and as beneficiaries of Australia’s international reputation. The parties consulted by DEETYA are identified at Attachments A and B.

The benefits and costs of the five viable options are detailed below. A comparative summary table is provided at Attachment C. The table is a comparative assessment of options against current arrangements.

The assessment of the absolute costs and benefits of each option and an indicative figure of these costs, where these figures are available, is provided below.

Consultation

Consultation was undertaken with all stakeholders in 1996 as part of the DEETYA commissioned Ernst & Young Review, and with peak industry bodies, State/Territory authorities and other stakeholders in April and May 1998. The extensive views of stakeholders are included as part of the cost and benefit analysis.

DEETYA continues to consult stakeholders on alternative regulatory options appropriate for the industry. The models and stakeholder impacts are summarised in the comparative assessment at Attachment C.

Option 1 Voluntary industry self regulation

Benefits

• Industry has a high level understanding of the issues that affect international students and the delivery of education and training services.

• Reduced costs of compliance for industry if Commonwealth regulation ceased.

• Reduced costs of regulation for State/Territory and Commonwealth governments.

• The cost of regulation is borne by the industry. The cost of entry into the industry would be set by the industry.

Costs

• Past practice suggests that industry associations by themselves have difficulty controlling unscrupulous providers. It would be difficult to control the minority of providers who might not comply with by-laws and codes of conduct, causing problems for the rest of the industry.

• There is a possibility that industry could be controlled by a small number of providers who could promote anti-competitive practices.

• Unscrupulous commercial practices could damage Australia’s reputation internationally.

• Absence of the appearance of Commonwealth Government regulatory involvement may undermine marketing efforts in some countries.

• The Government may be required to intervene and/or inject funds to maintain Australia’s international reputation.

• Requirement for legislative amendment to existing Migration Act 1958 to allow for the issuance of student visas without recourse to CRICOS.

• Servicing overseas students involves international trade, immigration and foreign affairs issues which may not readily be coordinated through industry groups.

• As the Australian Bureau of Statistics (ABS) currently relies on CRICOS data, there may be increased costs to the ABS of maintaining appropriate balance of trade data.
At the time of the 1996 review there was considerable debate about industry self regulation in which any specific government regulation is absent. Stakeholders noted that, while this option may save regulatory costs for education providers, their associations and governments, some sectors of the industry were not yet mature or had inadequate experience to self regulate. Industry immaturity, it was felt in 1996, could result in confusion in the implementation of self regulation.

It was widely agreed in 1996 that, although the industry had made progress under the ESOS Act, it was not yet able to undertake voluntary self regulation. At that time some industry bodies felt that self regulation would not generate confidence in the financial integrity of the industry. State/Territory education authorities were opposed to voluntary self regulation arguing that it fits uneasily with regulation of domestic education and training.

In rejecting this option in the 1996 review, it was argued that it brought a heightened risk of a return to the heavy costs for industry and governments which existed prior to the introduction of the ESOS Act. These risks include the financial collapse of providers, consequent damage to Australia’s international reputation and the potential cost to Australian taxpayers to refund prepaid course fees. The cost to Australian taxpayers to refund tuition fees prepaid in the late 1980s/early 1990s has been referred to previously.

Although peak industry bodies have established codes which set out the minimum standards required of member providers, these did not in 1996 and still do not include arrangements to provide adequate universal protections to ensure the industry does not suffer a crisis similar to the late 1980s and early 1990s.

While there have been positive signs of the increasing maturity of the industry since 1996 and increased awareness of the special needs of the industry (in particular, in relation to the protection of the rights of overseas students) there are still concerns, including:

• the growth in the number of providers may be out of step with the growth in the number of overseas students, running the risk of providers over-capitalising and not being able to actualise the anticipated returns; and

• the impact of the currency crisis, particularly on the private ELICOS sector which earns large revenue from study tourism.

This year there has been some interest in moving towards greater self regulation. One peak industry body recently held initial discussions with DEETYA to seek assistance in exploring opportunities to progress movement to greater self regulation in that industry sector. The industry sector is not proposing voluntary self-regulation at this time.

Option 2 Mandatory industry self regulation

Benefits

(As with voluntary self regulation option:)

• Industry has a high level understanding of the issues that affect international students and the delivery of education and training services.

• Reduced costs of compliance for industry if Commonwealth regulation was reduced.

• Reduced costs of regulation for State/Territory and Commonwealth governments.

(Other benefits:)

• This model focuses the Commonwealth on the regulatory outcomes to be achieved without detailed specification of the means for achieving them.

• Details could be flexibly designed by specific industry groups.

• Approval of education and training providers and courses would still occur at State or Territory level.

• Small regulatory cost for Commonwealth of setting up framework.

Costs

(As with voluntary self regulation option:)

• Past practice suggests that industry associations by themselves have difficulty controlling unscrupulous providers. It would be difficult to control the minority of providers who might not comply with by-laws and codes of conduct, causing problems for the rest of the industry.

• There is a possibility that industry could be controlled by a small number of providers who could promote anti-competitive practices.

• Unscrupulous commercial practices could damage Australia’s reputation internationally.

• Absence of the appearance of Commonwealth Government regulatory involvement may undermine marketing efforts in some countries.

• The Government may be required to intervene and/or inject funds to maintain Australia’s international reputation.

• Requirement for legislative amendment to existing Migration Act 1958 to allow for the issuance of student visas with out recourse to the CRICOS.
• Servicing overseas students involves international trade, immigration and foreign affairs issues which may not readily be coordinated through industry groups.

• As the Australian Bureau of Statistics (ABS) currently relies on CRICOS data, there may be increased costs to the ABS of maintaining appropriate balance of trade data.

(Other costs)

• There would be additional costs for industry associations in administering regulatory arrangements for members. (The cost to industry associations under mandatory self regulation would be determined by the market.)

• Requirement for Commonwealth legislation on industry entry and standards and some monitoring of industry compliance.

When this model was canvassed in the 1996 review, industry associations were strong in their rejection of the model on the basis that it contained too many risks because the industry groups are not able to provide the level of protection which the ESOS Act currently provides. The Commonwealth and State/Territory agencies also had concerns about the level of protection able to be offered.

The industry view in relation to this model has not changed from that put forward in 1996. Only one industry sector has expressed interest in examining opportunities for greater self-regulation and has held initial discussions with DEETYA to seek assistance in exploring opportunities to progress movement to greater self regulation in that industry sector.

Option 3 Extension of existing arrangements for three years - a three tier cooperative model

Benefits

• Shared responsibility between the Commonwealth, State and Territory governments and industry.

• Time for stakeholders to consider alternative regulatory arrangements, including movement towards increased industry self regulation.

• Maintain a stable domestic environment which provides quality assurance through CRICOS registration, financial protections for overseas students’ prepaid course money and tuition guarantees.

• No requirement for government/taxpayer funds to be called upon to meet refund and alternative tuition costs, if ESOS Act ceases before agreement is able to be obtained on future tuition guarantees.

• The existence of the ESOS Act has been acknowledged by Australian Education Counsellors overseas as being an essential aid to the marketing of courses overseas.

• Maintenance of threshold criteria for the issue of student visas under Migration Act 1958.

• Maintenance of current costs to ABS for input into balance of trade data, and of statistical integrity of data used by ABS.

• There will be no damage to the integrity of the industry and Australia’s international reputation because there are no alternative arrangements in place to provide similar protections as those provided under the ESOS framework.

Costs

• Cost of administering the ESOS Act and associated Regulations for a further three years.

In 1996, Ernst & Young were commissioned to review the ESOS Act and to advise on the Act’s sunset clause (due to take effect on 1 January 1997). After extensive consultations with industry, State/Territory governments and other Commonwealth agencies, the review concluded that there was an ongoing need to have in place, through legislation, a framework of quality and financial certification that promotes and protects the export growth of the industry and that there was widespread agreement throughout the industry that key features of the ESOS Act should be retained. The consultants recommended the immediate extension of the sunset clause for a period of two years to 1 January 1999 and an appropriate sunset clause in the revised legislation to act as a catalyst for periodic review of the ongoing effectiveness of the legislative framework. The sunset clause was extended to 1 January 1999.

The cooperative three tier model was preferred by stakeholders in the 1996 Review and is still strongly favoured by industry. At a meeting on 3 March 1998 the ELICOS Association expressed strong support to DEETYA for the continuation of the model. At a meeting on 20 April 1998 other peak industry bodies did likewise. Although from time to time some industry groups express a level of disagreement with the requirement to pay the Annual Registration Charge and the differentiation in reporting requirements between Government funded (‘exempt’) and private (‘non-exempt’) providers, the peak bodies said they would prefer to have the ESOS Act as it is than not at all.

A list of stakeholders consulted on the extension to the sunset clause is at Attachment B. To date there has been unanimous support for the option to extend the life of the ESOS Act by three years from all stakeholders consulted. One State education authority commented that:

“Whilst we are fairly well set up [in this State] should the ESOS Act be repealed, we agree that changes to the regulatory framework in the current environment, is not appropriate. Further, there are some obvious administrative issues to be considered should the Commonwealth decide not to be involved in the registration of providers”

The ELICOS Association and other peak industry bodies support a further extension of the sunset clause of the ESOS Act to maintain the stability in the domestic environment during the current period of volatility and to adequately consider the nature of any future regulation for the industry.

The existence of the ESOS Act has been acknowledged by Australian Education Counsellors overseas as being an essential aid to the marketing of courses overseas.

In the current volatile environment, the existing regulatory option is viewed by stakeholders as providing adequate protections to ensure the integrity of the industry. The other options do contain a higher level of risk because industry groups have indicated that they are not able to provide the level of protection which the ESOS Act provides.

Option 4 Existing arrangements plus “roll back”

Benefits

• Strong safety net protecting both international students and Australia’s international reputation, with industry and State/Territory and Commonwealth Governments all having important regulatory roles.

• Lower regulatory cost to Commonwealth than option 3, to the order of 25 percent.

• Maintain the statistical integrity of data used by the Australian Bureau of Statistics for input into balance of trade assessments.

Costs

• Additional costs of regulation borne by States/Territories.

• Differing State/Territory requirements.

• Potential for confusion in overseas perception by the differing State/Territory requirements.

The 1996 review sought views on the implementation of roll back with the States. Both the State/Territory education authorities and industry groups were concerned about the adequacy of arrangements and resources in the States/Territories to adequately maintain the financial requirements. Industry groups were also concerned about the inconsistency of State/Territory legislation and policy.

There has been no further progress on roll back with any State/Territory because of a distinct lack of interest from the relevant education authorities.

Option 5 A simplified cooperative model - the 1996 Review

Benefits

• Reflects the responsibility and capacity of the Commonwealth to promote export performance nationally.
• Reflects the respective interests and capabilities of the States/Territories to regulate provider activities in the context of their individual education and industry programs.

• Simplification of CRICOS listings.

• Simplified refund requirements.

• Simplified financial regulation, including alternatives to NTAs and existing audit and annual return requirements where providers satisfy financial security requirements.

Costs

• Increased risk to the industry, in volatile market conditions.

• Increased cost to State/Territory authorities with their increased monitoring role.

In the 1996 Review, Ernst & Young were commissioned to advise on an ideal model for future regulation of the industry and an industry development/transition plan to implement such a future model. The consultants recommended a simplification of the existing legislation and a program of consultation to prepare for a revised legislative framework. In Ernst & Young’s view this model better reflected the respective interests and capabilities of the Commonwealth to promote export performance nationally, and of the States/Territories to regulate provider activity in the context of their individual education and industry programs.

The recommendations in relation to simplification of the existing legislation were not proceeded with as they received no support from the industry and State/Territory governments. The industry believed that it had developed systems to accommodate the existing regulatory requirements and strongly argued to “leave well enough alone”.

This new cooperative regulatory option was further discussed with industry bodies in August 1996 and they remained strongly opposed to the changes proposed.

DEETYA indicated support for the option and encouraged State/Territory education authorities and industry groups to consider how it could be implemented. No State/Territory has expressed interest in progressing the option, however, one peak industry body has recently indicated an interest in examining the possible progression of greater industry self-regulation, proposed under this model. Other peak industry bodies remain opposed to the model. The simplified cooperative model remains the main possible alternative model for the industry at this time.

In the current volatile environment, the simplified cooperative regulatory option does contain a higher level of risk than the current three tier cooperative model, because industry groups have indicated that, at this time, they are not able to provide the level of protection which the ESOS Act provides. The extension of the sunset clause for three years will provide an adequate period of time for the Commonwealth, State/Territory governments and industry to focus on possible future regulatory models with a view to progressing a greater degree of self regulation.

F Assessment of Consequences of No Action

The permanent expiration of the ESOS Act under its current sunset clause is not considered to warrant consideration as a separate option 8 “No action”.

If the sunset clause deactivates the ESOS Act, from 1 January 1999 there will no longer be a legislative basis for:

• Quality assurance through the maintenance of the national register (CRICOS);

• Protection of overseas students prepaid course money through the financial regulations; and

• Tuition guarantees.

In addition:

• The lack of protection for students’ fees may lead to a call on taxpayers’ funds to meet refund and alternative tuition costs if the ESOS Act ceases before agreement is able to be obtained on future tuition guarantee arrangements;

• A threshold criteria for the issue of a student visa under the Migration Act 1958 will not be able to be met until legislative amendments are achieved; and

• It may not be possible to maintain the statistical integrity of data used by the ABS for input into balance of trade assessments.

Risk Assessment

The objectives of government action identified in Section C above will be frustrated, should the ESOS Act be permanently expired. These are discussed below.

(a) Ensuring that the courses provided for the eduction and training of overseas students in Australia on student visas are of a high standard.

The ESOS Act builds on State/Territory legislation and policy by requiring that all providers and the courses they offer to overseas students are accredited and approved by the relevant State/Territory education authority. This ensures quality standards and the reliability of providers. The ESOS Act provides the specific prohibition on offering or providing courses to overseas students unless the provider and courses have been admitted to CRICOS. Providers and courses can only be admitted to CRICOS on the advice of the relevant State/Territory authority.

There would be a risk to the integrity of the quality of Australian education offerings in the absence of CRICOS. This could place in question the integrity of Australian awards and this, in turn, could impact adversely on student demand for places.

(b) Ensuring that the pre-paid course money (fees) of overseas students are used by providers for that purpose.

The existence of the ESOS Act provides prospective students and their families with assurances about the protection of prepaid course money and Overseas Counsellors have stressed that this is an important factor in the marketing of Australia as a reliable provider of quality courses. There would be a heightened risk to students’ prepaid course money from unscrupulous providers and their agents as the State/Territory authorities and industry do not have alternative arrangements in place to provide similar protections to the ESOS Act.

(c) Ensuring that taxpayers funds are not required to recompense overseas students who have suffered financial loss through the actions of a disreputable provider.

Australia’s reputation as a reliable provider of educational services to overseas students was threatened in the late 1980s by a combination of events, including the emergence of some unscrupulous providers in the private education sector. The ESOS Act was introduced with provisions specifically designed to protect students’ prepaid course money by requiring providers to hold those funds in trust accounts. While there may still be room for improvement through a more streamlined approach to trust account reporting, the overall standing of the industry internationally has improved, in a large part due to the protections and guarantees provided by the ESOS Act.

The absence of specific requirements to protect prepaid course money would increase the risk of taxpayers’ funds being called upon to recompense overseas students who suffer financial loss.

G Recommended Option

Of the options set out in Sections D and E above, only Option 3, extension of existing arrangements for three years - a three tier cooperative model, is feasible by 1 January 1999.

Voluntary industry self regulation (option 1) could be progressed in the short term because the sunset clause will automatically deactivate the ESOS Act on 1 January 1999. However, peak industry groups have advised that they are not in a position to provide adequate protections and there is concern that the industry could face situations similar to those faced in the late 1980s.

The roll back model (option 4) could be progressed reasonably quickly if the States/Territories agreed to accept roll back, but the ability of the States/Territories to fulfil the requirements before 1 January 1999 is unlikely. To effect roll back, an extension to the sunset clause of the ESOS Act would be required.

The simplified cooperative model (option 5) could be undertaken in the medium to long term provided the State/Territory authorities and industry agree to accept a higher level of participation in the regulation of the industry. Mandatory industry self regulation (option 2) could be progressed in the medium to long term if peak industry bodies put in place arrangements to protect prepaid course money and to provide tuition guarantees. To date, industry bodies have been reluctant to commit members to provide the necessary guarantees. The medium to long term time frame is required because these models would require amendments to the existing legislation.

The reluctance of industry and State/Territory authorities in 1996 and 1998 to support alternative models needs to be considered in assessing the ease of implementation of any alternative options. DEETYA notes that there has been some progress toward industry acceptance of alternative models. The initiative shown by one industry peak body in recent months in seeking to progress discussion on issues of industry self regulation is noted and is encouraging.

The general conclusion drawn from this RIS is that the extension of the sunset clause is preferred by all stakeholders in the short term, but greater industry self regulation is the Government’s preferred longer term option. In specific terms the extension of existing arrangements for three years under the three tier cooperative model (option 3) is supported by the Minister for Employment, Education, Training and Youth Affairs, State/Territory authorities, industry peak bodies and other Commonwealth Government agencies, for example, DIMA and Austrade.

The cooperative three tier model (option 3) and the simplified cooperative model (option 5) remain the main possible alternative models for the industry at this time. The extension of the sunset clause will provide an adequate period of time to focus on possible future regulatory models. In the current volatile environment, the other options do contain a higher level of risk than the current model because industry groups and State/Territory authorities have indicated that, at this time, they are not able to provide the level of protection which the ESOS Act provides.

H Conclusion

The current regulation of the education exports industry is a cooperative approach between the Commonwealth, State and Territory governments and industry with the universal support of stakeholders. This support was strongly expressed during the 1996 review of the ESOS Act and again in consultations in 1998. The continued support is reasonable, and recognises the contribution the ESOS Act has made to quality standards and maintaining a stable domestic environment. Severe challenges will face the Australian education export industry over the next few years resulting from a range of non-economic factors which have contributed to a decline in the number of overseas students enrolling in the private sector of the industry. In addition, recent dramatic currency movements in a number of key Asian markets are responsible, in part, for the declining growth rate in recent months. Earlier forecasts of longer term growth in the private sector are probably now unattainable.

The cooperative regulatory model, with the ESOS Act as the key national element, has successfully maintained a stable domestic environment for the education and training services export industry over the past five years. This is evidenced by the high growth of Australia’s education exports and the strong support which stakeholders have for the ESOS Act.

The changes in the education and training services industry and in the international environment strongly support proceeding with an extension of the sunset clause for three years. This will ensure that a situation does not arise which sees the sunset clause deactivate the Act without alternative arrangements set in place to ensure the integrity of the industry.

The industry has put forward strong arguments for the Commonwealth maintaining a regulatory role in relation to the education exports industry. The relevant arguments relate to international trade, immigration and foreign affairs issues which may not readily be coordinated by the States or Territories or by industry bodies.

The education exports industry is expected to contribute in excess of $3.3 billion to Australia’s trade balance in 1998 in addition to the intangible benefits which accrue to Australia. The three year extension to the ESOS Act’s sunset clause will maintain quality standards and a stable domestic environment during a time of economic volatility in major source markets. The extension will also allow time for the Commonwealth, State and Territory governments and industry to focus on possible future regulatory models with a view to progress a greater degree of self-regulation. DEETYA will continue to consult stakeholders on alternative models appropriate for the industry. The experiences of this volatile period will inform the discussions.

I Implementation and Review

The Government has decided that option 3, the extension of the ESOS Act for three years, with on-going discussion with stakeholders to examine alternative regulatory arrangements, should be adopted.

This option meets the Governments’ objectives of quality assurance and financial protection of overseas students pre-paid course money, and reduces the risk of a call on taxpayer or Commonwealth funds in the event of provider default. The objectives of government action are identified in Section C above.

As discussed, the implementation of the extension of the ESOS Act until 2002 and on-going consultation with stakeholders can be viewed as an opportunity for the industry to develop a self-regulatory ethos, increase voluntary compliance and progress to greater self regulation.

The implementation of the extension of the ESOS Act until 2002 is being progressed by DEETYA through legislation to be introduced in the 1998 Winter sittings of Parliament. Stakeholders have been consulted and they are listed in Attachment B.

To focus stakeholders on alternative models for the future regulation of the industry, DEETYA proposes to bring together peak industry representatives, representatives from State/Territory authorities and other key stakeholders for round table discussions in November/December 1998. Alternative models will be further developed and refined over the six months following the round table meeting. This will allow an adequate period to identify the nature of any future Commonwealth regulation, to introduce legislation to effect the preferred option and provide an adequate transition period. This approach will also allow for the on-going review of the implementation of the sunset clause extension.

Effecting an extension of current arrangements is clear, consistent, comprehensible and accessible to users. The impact on businesses will be minimal, in comparison to the impact of no action which will result in the deactivation of the ESOS Act on 1 January 1999.


Attachment A



Stakeholder bodies consulted by Ernst & Young in the 1996 Review of ESOS Act.

Attachment B



Stakeholder bodies consulted by DEETYA in relation to the proposed extension to the sunset clause of ESOS Act.

Attachment C

Comparative Assessment of Regulatory models

EDUCATION SERVICES FOR OVERSEAS STUDENTS (REGISTRATION OF PROVIDERS AND FINANCIAL REGULATION) AMENDMENT BILL 1998

NOTES ON CLAUSES

Clause 1 - Short Title

Clause 1 provides for this Act to be cited as the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Amendment Act 1998.


Clause 2 - Commencement

Clause 2 provides for this Act to commence on the day on which it receives the Royal Assent.


Clause 3 - Schedule(s)

Clause 3 provides that each Act that is specified in a Schedule is amended as set out in the applicable Schedule.

SCHEDULE 1

AMENDMENT OF THE EDUCATION SERVICES FOR OVERSEAS STUDENTS (REGISTRATION OF PROVIDERS AND FINANCIAL REGULATION) ACT 1991

Item 1

Amends section 20 of the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Act 1991 to extend the operation of the Act by three years until 1 January 2002.

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