Will the Tuition Protection Service be able to cope?

The day after the article below was published, the Tuition Protection Service Board issued advice on the 2025 International TPS Levy Settings. The Board has recommended reintroducing risk factors for positive volatility in the sector (meaning some providers will pay a higher TPS levy). The Board’s aim is to increase the range of the Overseas Students Tuition Fund from the current $35m – $60m, to $40m – $60m.

The TPS Board have chosen to recommend not increasing the special tuition protection component of the 2025 International TPS Levy, leaving it at 0%.

The TPS website notes that the special tuition component is “charged when the balance of the OSTF is below its target range to ensure there are sufficient funds available in the event of a large provider default, or multiple provider defaults.”

Even with the above recommended change – if just 10% of private VET and higher education international students are affected by college closures next year and they each have just $1,500 in unspent tuition fees (to be paid either to a new provider or refunded to the student) then the draw on the Fund will be $59 million.

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The content below was published on 21 October 2024:

The Tuition Protection Service was established by the Australian government in 2012 following the recommendations of the 2010 Review of the Education Services for Overseas Students (ESOS) Act 2000 – the ‘Baird Review’.

At the time – former NSW Deputy Liberal Leader and former member of the Australian House of Representatives, the Hon Bruce Baird MP, noted the following about the review he had been asked to conduct and about the Australian international education sector:

How little times have changed, and now here we are again…

At the time of the Baird Review, private provider peak bodies ran government approved tuition assurance schemes (TAS) which ensured that in the event of a provider closure, international students received either an alternative suitable course or a refund. If the provider’s TAS could not refund or place the student, the government-run ESOS Assurance Fund provided assistance.

In 2009-2010 almost 50 private providers closed their doors and almost 12,000 students were displaced. At that time there were approximately 200,000 international students studying with private VET and higher education providers. The 12,000 students represented approximately 6% of all of these private tertiary students.

Many of the providers were members of the TAS run by the Australian Council for Private Education and Training (ACPET), and when I stepped into the role of ACPET CEO in mid-2010 I was involved in overseeing the placement of thousands of students and providing refunds to thousands more. I had meetings and teleconferences with state and Australian government officials across the country as we worked around the clock to support students through this incredibly traumatic period and processes.

The many ACPET members who took on displaced students, provided remedial training for many students (unpaid) to account for the poor quality/incomplete training many students had received, also deserves recognition. It was an extraordinary time and thanks are due to all the providers, officials and the ACPET staff who worked so tirelessly to support students at this time.

Ultimately though peak bodies were not up to the task and some of the smaller schemes folded as colleges closed and they were unable to place students or pay refunds. And so the government-run Tuition Protection Service (TPS) was established.

At the end of June 2024, the TPS held $47.8 million in its Overseas Students Tuition Fund (which it administers to assist international students displaced by a provider closure).

The money in the Fund comes from provider contributions. It is used to pay tuition fees to a new provider who takes on the displaced students, or to pay refunds to students where no alternative courses can be found for them.

With provider closures now emerging as an issue again and more appearing likely as international student caps are imposed on the sector, it is timely to ask if the TPS will have sufficient funds to manage the possible number of closures the sector will face in the next 12-18 months, and to assist all affected students.

There are expert representatives from the Department of Finance and the Australian Prudential Regulation Authority on the TPS Advisory Board (and they are much more expert on financial modelling than I am) – but the following assumptions would indicate the TPS is likely to struggle to meet its obligations to students:

At the end of July 2024 there were 508,316 international students in Australia studying with private providers.

Of these 114,000 were enrolled with private schools, non-award or ELICOS providers. Schools, non-award and ‘standalone’ ELICOS enrolments are exempt from the caps, and even though some ELICOS providers will face financial challenges (a) because of the increased cost of international student visa fees to study in Australia and (b) the impact of caps associated with their pathways ELICOS programs; for the sake of this calculation it is assumed that no ELICOS students will be impacted by provider closures.

That leaves 306,679 international students enrolled in private VET colleges and 87,595 enrolled in private higher education: a total of 394,274 students who might be impacted by provider closures as a result of receiving low international student caps .

Assuming that just 10% of these students are studying with a provider which closes its doors – a figure which is feasible given the 6% of students affected by provider closures in 2009-10 (in providers which were not subject to government actions explicitly designed to restrict new student enrolments on the scale of the new proposed student caps) – that would mean 39,427 students would need to be placed with a new provider or issued with a fee refund.

Assuming these students had all paid very modest tuition fees and were all near the end of their courses when their provider closed (ie they each had only $1,250 in unspent tuition fees remaining) – the ESOS Assurance Fund would be overspent.

That is: 39,427 students, each with an average of just $1,250 in unspent tuition fees = $49.3 million.

Inevitably it seems that, contrary to expectations when consultations were undertaken on the 2025 International Student Levy just a few months ago, private providers will pay higher fees next year as the Special Tuition Protection Component (STPC) will surely be reviewed against the current market conditions.

At the time of the consultations it was anticipated that the STPC would be set at 0% for 2025, but I cannot see this being feasible in the current context. And if my assumption is right and the STPC is set at a higher rate, then the financial pressures on private providers will only increase…