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2019
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
VET STUDENT LOANS (VSL TUITION PROTECTION LEVY)
BILL 2019
REPLACEMENT EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Employment, Skills, Small
and Family Business, Senator the Hon Michaelia Cash)
VET STUDENT LOANS (VSL TUITION PROTECTION LEVY)
BILL 2019
OUTLINE
The purpose of the VET Student Loans (VSL Tuition Protection Levy) Bill 2019 (the Bill)
is to impose the VSL tuition protection levy, specify the amounts that are payable by various
classes of providers and prescribe the levy components and the manner in which, and by
whom, they will be determined each year. The Bill is part of a package of legislation to
implement a new tuition protection model for students participating in the VET Student
Loans program and for higher education students accessing FEE-HELP or HECS-HELP
assistance at a private education provider or TAFE.
The tuition protection arrangements that apply to approved course providers are specified in
amendments made to the VET Student Loans Act 2016 (VSL Act) under the Education
Legislation Amendment (Tuition Protection and Other Measures) Bill 2019 (Tuition
Protection and Other Measures Bill). Details of the collection and recovery of the VSL
tuition protection levy will be dealt with in amendments to the VET Student Loans Rules
2016. The levy amounts collected will be credited into the VSL Tuition Protection Fund
which is a special account for the purposes of the Public Governance, Performance and
Accountability Act 2013. This Fund is established under new section 66J of the Tuition
Protection and Other Measures Bill.
Together, the Tuition Protection and Other Measures Bill, the Higher Education Support
(HELP Tuition Protection Levy) Bill 2019 and this Bill will implement the expansion of the
successful tuition protection service (TPS) for international students to cover students
accessing a VET student loan, FEE-HELP assistance or HECS-HELP assistance at private
education providers or TAFEs for their vocational education and training course or higher
education courses respectively, with effect from 1 January 2020.
There will be three elements to the VSL tuition protection levy:
the administrative fee component - this is intended to cover the ongoing
administration costs of the tuition protection arrangements, such as the remuneration
of the VSL Tuition Protection Director, members of the VSL Tuition Protection
Fund Advisory Board and any consultants engaged by the Director to assist and
support the performance of his or her role and functions. This component of the levy
is payable by all leviable providers, but a new provider only pays part of the
component in their first year;
the risk rated premium component - this is intended to cover the risk of each
provider defaulting. This component is payable only by private providers, that is, it
is not payable by TAFEs or by providers which are owned by the Commonwealth, a
State or a Territory;
the special tuition protection component - this is intended to be imposed in instances
where the levy funds are below the 'target fund size' or to insure against future
systemic shocks. This component is payable only by private providers.
1
The responsibility for determining the levy's components is as follows:
the Minister will determine the administrative fee component; and
the VSL Tuition Protection Director will determine the risk rated premium
component and special tuition protection component of the levy.
In making the instrument for the purposes of the administrative fee component, the Minister
is required to have regard to the sustainability of the VSL Fund and any other matters the
Minister considers appropriate. The Bill provides for an upper limit beyond which the
administrative fee component cannot exceed (which amount is subject to indexation). This
upper limit was determined in consultation with the Australian Government Actuary.
The risk rated premium component of the levy is calculated according to a detailed
methodology provided for in the Bill (see proposed section 11 of the VSL Levy Bill), which
was developed by the Australian Government Actuary. This methodology takes into
consideration the provider's level of exposure under the relevant loan scheme in terms of
total student numbers and loan amounts as well as the provider's risk of default based on
certain risk factors such as volatility in student numbers, course completion rates, length of
operation, by way of example.
In making the instrument for the purposes of the risk rated premium component, the VSL
Tuition Protection Director is required to have regard to the advice of the VSL Tuition
Protection Fund Advisory Board as well as the sustainability of the VSL Tuition Protection
Fund. Notably, members of the Advisory Board are required to include, amongst others,
representatives from the Department whose Minister administers the Public Governance,
Performance and Accountability Act 2013, the Australian Prudential Regulatory Authority
and the Australian Government Actuary (see section 55C Education Services for Overseas
Students Act 2000). Thus, the Board will be well positioned to provide transparent and
sound advice. The Treasurer is also required to approve the legislative instrument before the
Director makes the instrument, providing an extra measure of scrutiny to the legislative
instrument.
The VSL Tuition Protection Director is similarly responsible for determining in the same
legislative instrument (and so with the same checks and guidance) the percentage to
multiply the providers' total loan amounts by in order to calculate the special tuition
protection component. This component of the levy is intended to be imposed on providers to
enable the VSL Tuition Protection Fund to grow.
The levy will be reviewed annually. A key objective of the Bill is to ensure there is
sufficient flexibility to allow the levy to respond to sector trends through regular review.
This is essential to ensure the sustainability of the arrangements to Government and to
ensure that leviable providers are charged reasonably and proportionately in line with
market costs of delivering tuition protection, and to reflect their actual risk levels.
Consistent with other delegated legislation, the Minister and the Director will consult with
the sector as part of the annual levy setting process and similarly both instruments will be
subject to Parliamentary scrutiny through the disallowance process after tabling in both
Houses of Parliament.
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FINANCIAL IMPACT STATEMENT
The measure to introduce new tuition protection arrangements to cover VSL students, FEE-
HELP or HECS-HELP students studying at a private education provider or TAFE will
generate an expected surplus of approximately $3 million over the forward estimates. This is
a result of the projected revenue collected through the levy system.
Impact on underlying cash ($ millions)
2019-20 2020-21 2021-22 2022-23 Total
New tuition protection -0.5 +0.2 +1.6 +1.7 +3.0
measures
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STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011
VET STUDENT LOANS (VSL TUITION PROTECTION LEVY)
BILL 2019
The VET Student Loans (VSL Tuition Protection Levy) Bill 2019 is compatible with the
human rights and freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Bill
The purpose of the VET Student Loans (VSL Tuition Protection Levy) Bill 2019 (the Bill)
is to impose the VSL tuition protection levy, specify the amounts that are payable by various
classes of providers and prescribe the levy components and the manner in which, and by
whom, they will be determined each year. The Bill is part of a package of legislation to
implement a new tuition protection model for students participating in the VET Student
Loans program and for higher education students accessing FEE-HELP or HECS-HELP
assistance.
The tuition protection arrangements that apply to approved course providers are specified in
amendments made to the VET Student Loans Act 2016 (VSL Act) under the Education
Legislation Amendment (Tuition Protection and Other Measures) Bill 2019 (Tuition
Protection and Other Measures Bill). Details of the collection and recovery of the VSL
tuition protection levy will be dealt with in amendments to the VET Student Loans Rules
2016. The levy amounts collected will be credited into the VSL Tuition Protection Fund
which is a special account for the purposes of the Public Governance, Performance and
Accountability Act 2013. This Fund is established under new section 66J of the Tuition
Protection and Other Measures Bill.
Together, the Tuition Protection and Other Measures Bill, the Higher Education Support
(HELP Tuition Protection Levy) Bill 2019 and this Bill will implement the expansion of the
successful tuition protection service (TPS) for international students to cover students
accessing a VET student loan, FEE-HELP assistance or HECS-HELP assistance for their
vocational education and training course or higher education courses at private education
providers or TAFEs respectively, with effect from 1 January 2020.
Analysis of human rights implications
The Bill in isolation does not engage any of the applicable rights or freedoms. It provides a
VSL tuition protection levy to be imposed on leviable providers as a tax. This Bill is
necessary to give effect to the Government's reforms to the tuition protection arrangements
in place for students under the VET Student Loans program. The principal reforms are set
out in Tuition Protection and Other Measures Bill. A Statement of Compatibility with
Human Rights in relation to the reforms is attached to the Explanatory Memorandum for
that Bill.
4
Conclusion
This Bill is compatible with human rights because it does not, in itself, raise any human
rights issues.
5
LIST OF ABBREVIATIONS
TPS Tuition Protection Service established under the Education Services for
Overseas Students Act 2000
VSL Act VET Student Loans Act 2016
6
VET STUDENT LOANS (VSL TUITION PROTECTION LEVY)
BILL 2019
NOTES ON CLAUSES
Part 1 - Preliminary
Clause 1 - Short title
Clause 1 provides for the Act to be the VET Student Loans (VSL Tuition Protection Levy)
Act 2019.
Clause 2 - Commencement
The table in this clause specifies that the whole of the Bill, once enacted, commences at the
same time as Part 1 of Schedule 1 to the Education Legislation Amendment (Tuition
Protection and Other Measures) Act 2019, which when enacted is to commence on 1
January 2020.
Clause 3 - Act binds the Crown
Clause 3 provides that the Bill binds the Crown in each of its capacities. This clause will
ensure that, in keeping with principles of competitive neutrality, leviable providers that are
instrumentalities of the Crown in right of the Commonwealth or of a State or Territory are
not excluded from paying the levy merely because they are instrumentalities of the Crown.
See, however, subclauses 7(2) and (3).
Clause 4 - Act does not impose tax on property of a State
Subclause 4(1) provides that the Bill does not impose a tax on property of any kind
belonging to a State and subclause 4(2) defines property of any kind belonging to a State as
having the same meaning as in section 114 of the Constitution. Clause 4 ensures the Bill
does not contravene section 114, which prohibits the Commonwealth imposing any tax on
the property of any kind belonging to a State.
Clause 5 - Definitions
This clause contains definitions of the terms and expressions used in the Bill, including
administrative fee component, leviable provider, new provider, risk rated premium
component, special tuition protection component and VSL tuition protection levy.
A "leviable provider" is defined to be an approved course provider to whom Part 5A of the
VSL Act applies. Part 5A is the proposed new part in the Education Legislation Amendment
(Tuition Protection and Other Measures) Bill 2019 which sets out the arrangements relating
to tuition protection. Part 5A (with the exception of proposed sections 66F and 66G) does
not apply to Table A providers or to any providers of a kind prescribed by the rules. (A
provider to which only proposed sections 66F and 66G of the VSL Act applies is not a
provider to which Part 5A of the Act applies, and hence is not a leviable provider). Table A
providers are defined in section 16-15 of the Higher Education Support Act 2003 and
essentially comprise Australian public universities.
7
A "new provider" for a year is a leviable provider that was not an approved course provider
at any time during the previous year - that is, it is an approved course provider in its first
year of approval (or re-approval, if it was previously an approved course provider but was
not one the previous year).
"Total VSL students" is relevant to determining the administrative fee component and the
risk rated premium component of the levy. It means the total number of students who were
enrolled with the provider in an approved course with a census date occurring in the
previous year and have been approved for a VET student loan for the course. That is, it is a
measure of the actual number of students who were enrolled in an approved course with the
provider and were approved for a VET student loan for the course. This means that a
student enrolled in multiple courses at a single provider in the previous year will count only
once towards that provider's total VSL students. For new providers the 'Total VSL students'
will in effect be zero since they will not have had any actual VSL students in the previous
year.
Subclause 5(2) provides that any expression used in the Bill that is also used in the VSL Act
has the same meaning as in that Act.
Part 2 - VSL tuition protection levy
This part sets out the three components of the VSL tuition protection levy being the
administrative fee, risk rated premium and special tuition protection components and the
method of calculating these amounts.
A number of factors used in the calculations of the levy components will be set out in
legislative instruments made under this Bill. The Minister will make the legislative
instrument in respect of the administrative fee component; and the VSL Tuition Protection
Director will make the instrument in respect of the risk rated premium component and the
special tuition protection component.
The approach of using legislative instruments gives the Minister and the Director flexibility
in setting the various components of the levy to ensure the VSL Tuition Protection Fund
fulfils its purpose and that leviable providers pay an amount which reflects the current state
of the Fund, the risk rating of each provider and its level of exposure in the VET Student
Loans program. Before making a legislative instrument, the Director must first obtain the
written approval of the Treasurer to the determinations he or she makes (see subclause
13(6)). In addition, as per the usual process, these legislative instruments are subject to
scrutiny and disallowance by both Houses of Parliament.
The mechanism of setting components of the levy that reflect the costs of operating the
tuition protection scheme and particular providers' risks of defaulting, by enabling flexible
year-on-year adjustments through legislative instrument, is consistent with the successful
and industry-accepted mechanism for the TPS Levy established under the Education
Services for Overseas Students (TPS Levies) Act 2012.
Clause 6 - Imposition VSL tuition protection levy
This clause imposes a levy on a body for a year if the body is a leviable provider at any time
during the year.
8
Clause 7 - Amount of VSL tuition protection levy
Subclause 7(1) provides that the amount of VSL tuition protection levy for a year for a
leviable provider, other than a provider referred to in subclause 7(3), is the sum of the
provider's administrative fee component, risk rated premium component and special tuition
protection component for that year. These components are calculated in accordance with the
methods set out in clauses 8 to 13 of the Bill.
The note underneath subclause 7(1) assists the reader by referring to proposed section 14
which enables the rules to prescribe classes of providers that may be exempt from the
requirement to pay one or more components of the VSL tuition protection levy. The Bill
also expressly provides for certain classes of leviable providers to be partially exempt as
outlined below.
Subclause 7(2) provides that the amount of VSL tuition protection levy for a leviable
provider that is covered by subclause 7(3) is the administrative fee component of the levy
only. Providers covered by subclause 7(3) are registered training organisations that are the
TAFEs of each State and Territory, and other government-owned training organisations.
The lower levy on such providers recognises that they are at lower risk of default.
Subclauses 11(1) and 12(1) also deem a new provider's risk rated premium component and
special tuition protection component as both being zero.
Clause 8 - Administrative fee component
The administrative fee component is intended to cover the Commonwealth's operational
costs of tuition protection under proposed Part 5A and Part 5B of the VSL Act.
A leviable provider's administrative fee component for a year is the sum of:
the amount determined in an instrument made under section 9 for the purposes of
paragraph 8(2)(a) for the year; and
the amount determined in an instrument made under section 9 for the purposes of
paragraph 8(2)(b) for the year, multiplied by the total VSL students for the provider
for the year.
Factoring in a provider's total VSL student numbers for the year allows for the provider's
degree of exposure in the VET Student Loans program to be taken into account. If the
leviable provider is a new provider, subclause 8(1) provides that the amount of the
provider's administrative fee component is the amount determined for the purposes of
paragraph 8(2)(a) only.
Clause 9 - Legislative instrument for purposes of section 8
The Minister is responsible for making the legislative instrument setting the amounts used to
calculate a leviable provider's administrative fee component.
Subclause 9(1) provides that before 1 August 2020 the Minister must, by legislative
instrument, determine amounts for the purposes of paragraphs 8(2)(a) and (b) for 2020.
Subclause 9(2) gives the Minister the discretion whether to determine a legislative
instrument in subsequent years. If no instrument is made for a particular year before
1 August of that year, the administrative fee component of the levy is the same as the
previous year subject to indexation as per clause 10.
9
Subclause 9(3) provides that the amount the Minister determines for the purposes of
paragraph 8(2)(a) cannot exceed $325 and the amount for paragraph 8(2)(b) cannot exceed
$15. The Australian Government Actuary was consulted in setting these upper limit
amounts. This provision gives providers transparency and certainty as to the maximum
possible amounts that can be charged for the administrative fee component. The note
underneath subclause 9(3) clarifies that amounts under this subsection are be indexed
pursuant to clause 10.
Subclause 9(4) requires the Minister, in making a legislative instrument under clause 9, to
have regard to the sustainability of the VSL Tuition Protection Fund. Subclause 9(5) enables
the Minister to also have regard to any other matter the Minister considers appropriate.
Clause 10 - Indexation of administrative fee components etc.
Clause 10 provides for the indexation of both the administrative fee component of the VSL
tuition protection levy and also the upper limits of the amounts of the administrative fee
component prescribed in subclause 9(3). The Australian Bureau of Statistics was consulted
on this clause.
Subclause 10(1) provides for indexation to apply in accordance with a prescribed formula
from 1 August 2021, and each year later, to amounts mentioned in paragraphs 8(2)(a) or (b)
or 9(3)(a) or (b). The prescribed formula multiplies the amount under the respective
paragraph for the previous year, by the indexation factor for that 1 August. The amount
mentioned in paragraphs 8(2)(a) or (b) or 9(3)(a) or (b) is then replaced by the new amount.
Subclause 10(2) provides that subclause 10(1) does not apply to an amount mentioned in
paragraph 8(2)(a) or (b), if the Minister has determined an amount for the purposes of that
paragraph for the current year.
Subclause 10(3) sets out the formula for working out the indexation factor for the purposes
of subclause 10(1). The indexation factor for a 1 August is the index number for the
reference quarter divided by the index number for the base quarter. The index number for a
quarter means the All Groups Consumer Price Index number from the original series (being
the weighted average of the capital cities) published by the Australian Statistician for that
quarter. The base quarter means the last September quarter before the reference quarter and
the reference quarter means the September quarter in the year before the current year.
Subclauses 10(4) to 10(7) provide for rounding factors to apply to the indexation factor and
the amounts worked out under subclause 10(1). Subclause 10(4) provides that the indexation
factor worked out under subclause 10(3) must be rounded up or down to 3 places and
subclauses 10(5) and 10(6) provide for the rounding of amounts worked out under subclause
10(1). Subclause 10(7) provides that an indexation factor that is less than 1 is to be
increased to 1. This ensures that amounts to be indexed are not reduced. Subclause 10(8)
provides that, if at any time the Australian Statistician has changed or changes the index
reference period for the Consumer Price Index, then, for the purposes of applying clause 10
after the change, only index numbers published in terms of the new index reference period
are to be used.
Subclause 10(9) requires the Minister to cause each amount worked out under subclause
10(1) to be made publically available in any manner the Minister considers appropriate. For
example, the Minister may require that the VSL Tuition Protection Director publishes the
indexed amounts on a particular website.
10
Clause 11 - Risk rated premium component
The risk rated premium component is calculated based on the provider's level of exposure
under the VET Student Loans program, in terms of total student numbers and VET student
loan amounts, as well as the provider's risk of default based on certain risk factors.
Subclause 11(1) provides that if a leviable provider is a new provider for a year, the amount
of the provider's risk rated premium component for the year is zero.
Subclause 11(2) sets out a six-step method statement for calculating a leviable provider's
risk rated premium component, as follows:
1. The first step is to multiply the total VSL students for the provider for the year by
the amount determined in an instrument under section 13 for the purposes of this
step for the year - this allows for the provider's level of exposure based on VSL
student numbers to be taken into account.
2. The second step is to multiply the amount equal to the total loan amounts paid to the
provider under section 19 of the VSL Act for the previous year by the percentage
determined in an instrument under section 13 for the purposes of this step for the
year - this allows for the provider's level of exposure based on actual VET student
loan amounts paid to it for the previous year to be taken into account.
3. The third step is to add up the results of steps 1 and 2.
4. The fourth step is, for each risk factor determined in an instrument under section 13
for the purposes of this step for the year, work out the risk factor value for the
provider for the year in accordance with the instrument. Examples of risk factors that
may be specified in the instrument are: volatility in student numbers; course
completion rates; length of operation as a registered training organisation; numbers
of high-risk courses; compliance history. These are all factors which could impact on
a provider's risk of default.
5. The fifth step is to add up the provider's risk factor values worked out under step 4
and add 1.
6. The sixth step is to multiply the results of step 3 (i.e. exposure based on student
numbers and VET student loans) by the results of step 5 (i.e. exposure based on risk
factors). The result is the provider's risk rated premium component for the year.
Clause 12 - Special tuition protection component
The special tuition protection component is intended to be imposed on providers to allow
the VSL Tuition Protection Fund to grow. For example, it might be imposed in the early
years to allow the Fund to grow to its target size. Alternatively, it might also be imposed in
years of growth of the VET Student Loan program to build up contingency amounts in the
Fund for future years.
Subclause 12(1) provides that, if a leviable provider is a new provider for a year, the amount
of the provider's special tuition protection component for the year is zero. Otherwise, a
leviable provider's special tuition protection component for a year is the total loan amounts
11
paid to the provider under section 19 of the VSL Act for the previous year, multiplied by the
percentage determined in an instrument made under section 13 for the purposes of
subsection 12(2) for a year. Factoring in a provider's total VET student loans amounts for
the previous year allows for each provider's contribution to be fair and proportionate to their
participation in the VET Student Loans program.
Clause 13 - Legislative instrument for purposes of section 11 or 12
The VSL Tuition Protection Director is responsible for making the legislative instrument
that is necessary to calculate a leviable provider's risk rated premium component under
section 11 and its special tuition protection component under section 12.
Subclause 13(1) provides that the VSL Tuition Protection Director must, by legislative
instrument, determine before 1 August 2020 and for each later year, each of the following
for the year:
an amount for the purposes of step 1 of the method statement in subsection 11(2);
a percentage for the purposes of step 2 of the method statement in subsection 11(2);
one or more risk factors that reflect the risk of payments being made out of the VSL
Tuition Protection Fund in respect of leviable providers with that factor or those
factors, and for each risk factor, the risk factor value, or a method for working out
the risk factor value, for leviable providers, or a class of leviable providers. This is
for the purposes of step 4 of the method statement in subsection 11(2);
a percentage for the purposes of subsection 12(2).
Subclause 13(2) provides that the percentage determined for the purposes of paragraphs
13(1)(b) or (d) may be zero. Subclause 13(3) provides that a risk factor value for a risk
factor must be a number between zero and 10 inclusive.
Subclause 13(4) provides that, in making a legislative instrument under subsection 13(1),
the VSL Tuition Protection Director must have regard to both any advice of the VSL
Tuition Protection Fund Advisory Board and the sustainability of the VSL Tuition
Protection Fund. Under subclause 13(5) the VSL Tuition Protection Director may also have
regard to any other matter that the Director considers appropriate.
Before the VSL Tuition Protection Director makes a legislative instrument for the purposes
of clause 13, subclause 13(6) requires the Treasurer to approve the legislative instrument in
writing. This provides an extra measure of scrutiny to the legislative instrument.
Part 3 - Other matters
Clause 14 - Exemptions
This clause provides that the rules (a legislative instrument made under section 116 of the
VSL Act) may prescribe one or more classes of leviable providers who are exempt from the
requirement to pay one or more of the components of the levy. Notably, only classes of
providers may be prescribed, and not individual providers.
This power to make a rule exempting a class of providers is necessary to provide flexibility
and responsiveness in the requirements imposed on providers and the management of the
VSL Tuition Protection Fund. It means that, if it becomes apparent that it is no longer
appropriate for a class of providers to pay a particular component of the levy, for example
12
due to their risk of default, they can be exempted from the requirement to pay one or more
of the components.
Clause 15 - Regulations
This clause enables the Governor-General to make regulations prescribing matters required
or permitted by this Act to be prescribed, or necessary or convenient to be prescribed for
carrying out or giving effect to this Act.
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