Issues Paper – Tuition Fees
Research
Paper 3
ACT Education and Training Directorate
Tuition Fees
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Issues Paper – Tuition Fees
© ACT Education and Training Directorate 2014
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An appropriate citation for this paper is:
ACT Education and Training Directorate (2014) Skilled Capital Tuition Fees Issues Paper, Report 3 of 8,
Canberra.
Publish date: December 2014
ACT Education and Training Directorate
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Issues Paper – Tuition Fees
Overview
Tuition fees for training under Skilled Capital will be uncapped and two safeguards will be
implemented to prevent registered training organisations (RTOs) from charging students
artificially high prices. These safeguards are:

The public disclosure of student fees - Under Skilled Capital, RTOs will be required to
report their student fees to the ACT Government, who will in turn make this information
publicly available. By increasing transparency around the cost of skills training, this
mechanism will allow students to make informed decisions in relation to their training
options. In this way, public disclosure of fees is also seen as fostering competition in the
skills training market.

Contractual clauses - Contractual agreements with RTOs accessing Skilled Capital
funding will give the ACT Government the power to intervene in the price setting of
individual RTOs if tuition fees are perceived as being unreasonably high. This will
safeguard students against prohibitive pricing by requiring RTOs to price qualifications at
competitive and realistic prices. It will also encourage innovation in training delivery so
that the RTOs can maximise their returns on investment.
It is acknowledged that for some qualifications, due to population size and the nature of the
training, monopolies of RTOs may always exist within the ACT. For these qualifications, close
monitoring may be required to ensure that RTOs are not engaging in uncompetitive behaviour,
in addition to the above safeguards.
While tuition fees will not be capped against high prices, a minimum tuition fee will be imposed
for training subsidised through Skilled Capital (excluding students who are eligible for a fee
waiver). By ensuring students pay a minimum fee for the training they undertake, a price signal
is sent that the government subsisidised training students receive has value. It also provides
students with a personal financial stake in their training that gives them greater incentive to
complete this training.
This issues paper considers whether tuition fees for training charged by RTOs under Skilled Capital
should be completely deregulated (i.e. set flexibly by RTOs) or regulated (i.e. set at a fixed price by
government), or some option between the two (such as caps or monitoring).
Multiple tuition fee payment arrangements currently apply to skills training in the ACT. In the
non-contestable market, the Canberra Institute of Technology (CIT) is able to sets its own fees.
However, it has to obtain Ministerial endorsement of those fees and, in some circumstances, Cabinet
endorsement to implement any variations to these fees.
In the contestable market, the situation is less straightforward. Under User Choice, RTOs can charge a
fee of up to $500 per student, while employer contributions remain uncapped. Under the Priorities
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Issues Paper – Tuition Fees
Support Program (PSP), which was targeted to students from priority groups, RTOs could set fees up
to a maximum amount set by the ACT Government.
There is merit in considering the amalgamation of these different arrangements into one
administratively simple and transparent arrangement that does not place undue red tape on RTOs
and which may also result in administrative efficiencies.
This paper sets out the preferred model for tuition fee payment arrangements. The analysis draws on
lessons learnt from Victoria’s experience in implementing the Victorian Training Guarantee, as well as
the future needs of the ACT in the context of a more contestable market. The remainder of the paper
is structured as follows.

Section 1 provides background into recent moves by the skills training sector to deregulate
fees and discusses Victoria’s experience as a case study.

Section 2 puts forward the principles used to guide development of a preferred model for
tuition fees.

Section 3 provides the results of analysis undertaken into the competitiveness of the ACT
skills training sector.

Based on the above, section 4 puts forward options for tuition fee payment arrangements
under Skilled Capital.
1
Moves to deregulated fees
A recent major change occuring in the skills training sector is the move towards a market based
allocation of funding. As a result of the National Partnership Agreement on Skills Reform (the National
Partnership), state and territory governments across Australia have introduced greater contestability
and competition for public skills training funding. There has also been a trend in some jurisdictions
towards deregulating fees.

Under the Victorian Training Guarantee (implemented in 2009 with flexible fees introduced in
2012), subsidies are uniform across RTOs, however, prices are set at the discretion of the
RTOs to reflect its competitive position in the skills training marketplace. RTOs are free to
make commercial decisions that reflect the demand for training, the cost of delivery, training
quality, and their reputation.1

Under South Australia’s Skills for All (implemented in 2012), foundation skills courses,
certificate I and II qualifications, and qualifications in priority areas are free of charge to
students. For certificate III qualifications and above, RTOs may charge student fees up to
$7,000.2
1
Department of Education and Early Childhood Development, Next Steps for Refocusing Vocational Training in
Victoria – Supporting a Modern Workforce, p.20.
2
Department of Further Education, Employment, Science and Technology, About Skills for All,
http://www.dfeest.sa.gov.au/skills-for-all/overview.
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Issues Paper – Tuition Fees

Under Queensland’s Great Skills – Real Opportunities, participants are expected to contribute
to the cost of training through a student contribution fee. The size of the fee is determined by
each RTO.3
The principle of ‘user pays’ was given prominence originally in the Deveson Report of 1990.4 That
report argued that the skills training sector’s model of resource allocation was inefficient due to the
absence of a price mechanism to signal the actual value of training. The Deveson Report suggested
some deregulation of fees in skills training to increase efficiency, quality, responsiveness to client
needs and private investment in training. A well designed funding system, providing for some degree
of fee deregulation, was seen as empowering institutions to set prices with regard to costs and
student demand.5
These are the ideas that underpin Victoria’s recent move away from regulated fees. This is discussed
in greater detail in Box 1.
3
Department of Education, Training and Employment, Great Skills. Real Opportunities.,
http://training.qld.gov.au/resources/information/pdf/great-skills-action-plan.pdf.
4
Deveson, I. 1990, Training Costs of Award Restructuring (Deveson Report) AGPS, Canberra.
5
Karmel, P. 2000, Reforming Higher Education, ASSA Occasional Paper Series 2/2000, Academy of the Social
Sciences in Australia, Canberra.
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Issues Paper – Tuition Fees
Box 1 – The Victorian Case Study
In 2011 the Essentials Services Commission (ESC) embarked on a review of fees and funding under the
Victorian Training Guarantee (VTG). The ESC’s final report recommended a number of changes to the
approach taken to the setting of tuition fees in the skills training market. Eventually, these
recommendations led to the Victorian Government removing capped fees in favour of flexible fees in 2012.
This case study discusses the ESC’s key findings in order to understand the Victorian Government’s
rationale for moving to deregulated fees.
Prior to 2012, tuition fees under the VTG were calculated based on the number of scheduled hours per
calendar year and the category of qualification a student was enrolled in. RTOs were free to determine the
hourly rate up to a prescribed maximum, subject to the application of specified course category minima
and maxima. A further annual fee cap applied if the student was enrolled in more than one course
category. Appendix A provides greater detail on the VTG’s previous tuition fee arrangements.
According to the review, the tuition fee payment arrangements under the original VTG were too complex.
While the ESC recommended retaining the maximum hourly tuition fee rates under a number of provisos, it
argued that the complexity around the course category minima and maxima as well as the annual caps
outweighed any benefits of improved affordability.
In the absence of a fully competitive market in Victoria, it was the ESC’s view that the specified maximum
hourly tuition fee rates would prevent RTOs charging artificially high fees for students in government
subsidised places. The maximum hourly rate was favoured by the ESC as a protective mechanism as it
allowed RTOs to be competitive and charge hourly tuition fee rates below the maximum level. The ESC
recommended that maximum hourly tuition fee rates should be retained only while there is limited
competition in the skills training sector. Over time, in areas or qualifications where greater competitive
provision can be verified, the ESC recommended that the maximum hourly rate should be increased and
eventually removed. The review also recommended that in the meantime, the maximum hourly rate should
be revised following an independent cost and pricing review to determine the cost of provision.
Source: Essential Services Commission (2011) VET fee and funding review, http://www.esc.vic.gov.au/OtherSectors/VET-fee-and-funding-review-2011/publications.
2
Principles for tuition fee arrangements
The Victorian case study has provided valuable insights in what matters when setting policy around
tuition fees. In line with these insights, the following principles have been considered when designing
the best possible tuition fee payment arrangement for the ACT:

in the absence of a fully competitive market, tuition fee arrangements should protect
students from RTOs charging artificially high prices

tuition fee arrangements should not put RTOs out of pocket for costs incurred in the delivery
of training

tuition fee arrangements should be simple and transparent, limiting regulatory burden on
RTOs

tuition fee arrangements should consider and limit any perverse incentives on students or
RTOs created by government intervention.
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3
Fee competitiveness in the ACT
To apply the first of the principles outlined above requires some preliminary analysis of the current
state of competitiveness of the ACT skills training sector.
In an efficient market the sum of the tuition fee and government subsidy should equal the efficient
cost of an RTO to provide a given qualification. However, in the absence of fully competitive and
efficient markets, there is scope for RTOs to charge artificially high fees for students in government
subsidised places.
Even if the ACT Government caps its subsidy payments to an efficient cost, flexible fees would allow
the RTO to increase its profit margin by raising tuition fees such that the total revenue for each
qualification is greater than efficient cost. Students are particularly likely to be exposed to this for
qualifications where fee competition is limited – that is, markets identified as having both few
students and few RTOs for a particular qualification.
An analysis of qualifications delivered in the ACT using User Choice data identified that while there are
a number of qualifications that are offered by a large number of RTOs and evidence of fee
competition, there are also many qualifications that are only offered by one RTO.
Markets where fee competition is limited were classified in this analysis as those being offered by only
one or two RTOs and having less than 20 commencements between 1 January 2012 and 30 October
2013. Out of the 307 qualifications examined, 162 were identified by the analysis as potentially having
limited competition in the ACT (53 per cent of qualifications). Of those, 59 are provided by CIT, with
the remaining 103 by private RTOs. A further 24 qualifications were offered by only one RTO, even
though commencements exceeded 20 during this period. This suggests that in a contestable market,
measures may need to be taken to ensure RTOs in these markets do not take advantage of the lack of
competition to artificially increase tuition fees.6
4
Options for tuition fees
The ACT’s Implementation Plan for the National Partnership commits the ACT Government to
increases in qualification completions and commencements, particularly for identified priority groups
such as Indigenous Australians, people with a disability and mature age workers. Skilled Capital must
ensure that affordability issues do not place additional barriers on these people to access skills
training.
Given the imperfect competition in the ACT skills training market currently, the full deregulated
option for tuition fees does not seem possible without some sort of mechanism in place to safeguard
against artificially high and prohibitive pricing. In the medium to longer term, once a contestable
market has been more established, and greater competitive provision can be verified, there should be
no reason against the ACT moving to completely flexible tuition fees.
It is acknowledged that for some qualifications, due to population size and the nature of the training,
monopolies of RTOs may always exist within the ACT. For example, automotive qualifications might be
considered ‘natural monopolies’ given large set up costs to provide the training. For these
qualifications, and in a possible future of completely deregulated fees, close monitoring will be
required to ensure that RTOs are not engaging in uncompetitive behaviour.
6
Unpublished User Choice data.
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It is also recognised that it may not be optimal for RTOs to compete to the extent that training is
offered at zero cost to students. For this reason, the setting of minimum fees has also been examined.
4.1
Setting maximum fee limits
The first approach to protecting students from prohibitive pricing is an upper limit placed on the fees
RTOs can charge per unit of competency (UoC). It is proposed that the upper limit would be equal to
the efficient cost for that UoC, minus any government subsidy, plus a pre-determined profit margin.
This is shown in Equation 1. This would effectively set the tuition fee to a multiple of the efficient cost.
A potential option to set maximum fee limits would be to calculate the current difference in tuition
fees charged by RTOs and the efficient cost. This would result in an approximate profit margin
percentage estimate which could then be applied in the maxium fee per UoC calculation as per
Equation 1.
Equation 1
Maximum fee per UoC = [(efficient cost – government subsidy)*(1+% margin)]
Table 1 illustrates two examples using a margin of 20 per cent above efficient cost maximum.
Table 1: Examples of tuition fee maximums
Student A
Efficient cost
Subsidy rate
Subsidy value
Efficient tuition fee
Margin
Maximum tuition fee
Increment above efficient tuition fee:
$1,000
80%
$800
$200
20%
$240=$200*(1+20%)
$40
Student B
$1,000
20%
$200
$800
20%
$960=$800*(1+20%)
$160
The table shows that when the government subsidy is a larger share of the efficient cost, the
increment above the efficient tuition fee a RTO is able to charge is lower, even though it remains
relative at a 20 per cent margin in both examples. As subsidy levels will be informed by the ACT Skills
Needs List, this is another mechanism to constrain fees in qualifications that are identified as skills
needs qualifications.
A number of other benefits are associated with this approach, including the following.

The maximum tuition fee per UoC should be effective on its own in addressing concerns
about affordability, by limiting the total fees payable by a student.

An upper limit allows RTOs to compete and charge tuition fees below the maximum level.

An upper limit at the UoC level rather than at the qualification level enables tuition fees to
dynamically adjust with individual student choice. That is, the cost of providing the same
qualification will vary depending on the electives chosen by a student. If tuition fees were
capped at the qualification level, RTOs would not be compensated for any additional costs
associated with more expensive electives over and above the maximum.

As demonstrated in the example in Box 2 below, the maximum would only be constraining if
the RTO wanted to engage in uncompetitive behaviour, as it is set at a margin above the
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efficient fee. As such, the benefit of setting a maximum is to reduce uncompetitive behaviour
and should not place any unfair restrictions on the market.
Box 2 – ‘Skills R Us’ Example
In a fictional market, the efficient cost for a Certificate III in Aged Care is $1,000 and a RTO ‘Skills R Us’
offers the training for $1,500. The take-up of this qualification at ‘Skills R Us’ is 50 students.
After Skilled Capital is introduced, this qualification is subsidised at 80 per cent of the efficient cost to
attract higher student participation. A maximum fee of $2,000 is placed on the market.
In a competitive market, the tuition fee should be set such that the RTO’s total revenue from that
qualification (government subsidy + tuition fee) is in line with the efficient cost of providing it, allowing for
differences in brand and quality. If ‘Skills R Us’ sets its tuition fee substantially above that of other RTOs
with similar training prestige and similar training quality, students would switch to the more competitive
RTOs. If ’Skills R Us’ wanted to maintain its enrolment base, it would then be forced to reduce its fee in line
with other RTOs in the market.
In this way, competition would moderate the ‘Skills R Us’ tuition fee, and in the long run it would be
expected to reduce the current price of $1,500 towards the efficient cost of $1,000. In this case, the
maximum fee would not affect the market.
In an uncompetitive market, ‘Skills R Us’ does not necessarily have any incentive to lower fees, as it would
be able to offer the same 50 places at its current fee of $1,500, and at the same time use the government
subsidy to obtain a higher profit margin. If a fully deregulated system of tuition fees was adopted,
depending on the responsiveness of students to price, ‘Skills R Us’ could potentially raise its fee.
In this way, a lack of competition would provide no moderation on tuition fees, and thereby create no
incentive for ‘Skills R Us’ to lower fees toward the efficient cost. Potentially, there could be an incentive for
‘Skills R Us’ to raise its current fee above $1,500. Even in this case, however, the maximum fee would not
affect the market unless the RTO attempted to raise fees above $2,000.
While there are clear benefits associated with this approach, another guiding principle in the design
of Skilled Capital is to minimise regulation in the system. Setting fee limits could be considered a
regulatory burden on RTOs.
The most significant issue with setting fee limits is its practical implementation. In order to implement
an appropriate system of caps, it would need to be identified what the maximum price should be for
each UoC funded under Skilled Capital. However, there is currently no reliable data on which to base
these upper maxima. Even if the required data was able to be sourced, annual changes in prices and
fluctuating conditions in the ACT skills training market more generally would require that this data be
updated on a regular basis. This would require a relatively sizeable ongoing commitment of both time
and resources for this approach to remain effective into the future.
In addition, there is a risk that the theoretical framework or RTO data underpinning the calculation of
the caps could be inaccurate.
Considering all of the above, it is not recommended that a price cap is set on tuition fees.
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4.2
Indirect safeguards against high prices
While a price cap is not recommended, it is acknowledged that the ACT skills training market does not
currently have sufficiently widespread fee competitiveness to protect students from fees that are
prohibitively expensive. As such, safeguards in addition to pure competitive market forces are
needed. Two indirect safeguards are recommended, which should prevent RTOs from charging
students artificially high prices.
The first is public disclosure of student fees. It is recommended that under Skilled Capital RTOs be
required to report their student fees to the ACT Government, who will in turn make this information
publicly available. By increasing transparency around the cost of skills training, this mechanism allows
students to make informed decisions with relation to their training options. As such, public disclosure
of fees is seen as fostering competition in the skills training market.
The second safeguard is contractual clauses against artificially high and prohibitive prices. It is
recommended that contractual agreements with RTOs accessing Skilled Capital funding give the ACT
Government the power to intervene in the price setting of individual RTOs if tuition fees are perceived
as being unreasonably high. This would safeguard students against prohibitive pricing by requiring
RTOs to price qualifications at competitive and realistic prices. It would also encourage innovation in
training delivery so that the RTO can maximise its returns on investment.
4.3
Setting minimum fees
It is possible that in an open, demand-driven market, RTOs could compete on price to such an extent
that qualifications are delivered with no requirement for a student contribution through tuition fees.
This is not considered optimal, as it may result in students not recognising the investment that is
being made in their skills. If a student does not have a personal monetary investment in their training,
it may result in them undervaluing their progress and minimise their incentives to complete.
A key outcome of the ACT’s Implementation Plan for the National Partnership is to increase
qualification completions. As such, it is important that students have some ‘buy-in’ to their training
and at least partially contribute to the costs of this. Therefore, it is recommended that a minimum
tuition fee is set to ensure that students make this personal commitment and have some invested
financial stake in their training.
It is recommended that the minimum fee should be linked to the efficient price of each qualification.
The minimum fee will be applied as some percentage of the difference between the efficient cost and
the government subsidy. There are concerns, however, that setting a minimum fee may reduce
affordability for students wishing to enrol in a low number of UoCs. For example, students wishing to
complete just one or two units of competency to gain a particular skill set may have to pay a higher
hourly rate than other students. In this way, a student may be worse off with a mandated minimum
tuition fee in place.
The contractual relationship between an RTO and student will govern how each RTO will charge the
minimum fee per qualification to students, including those that do not complete a full qualification.
The RTO may set a up mechanism to charge those students some part of the minimum fee. However,
it is recommended that on a case by case basis, the ACT Government may also review these situations
to ensure that students are not being charged unreasonably, or against the policy of the minimum
fee.
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Appendix A: Victorian Training Guarantee 2008-12
Maximum hourly tuition fee rates were set at differential rates based on the level of qualification
undertaken. The intention was that fees should vary in line with the expected private benefits
obtained by the training (refer Table 2).
Table 2: Maximum hourly tuition fee rates ($ per hour) – VTG prior to 2012
Course category
AQF award
2009
2010
2011
Foundation
Various
1.08
1.08
1.08
Skills Creation
Certificate I and II
1.37
1.40
1.51
Skills Building
Certificate III and IV
1.41
1.62
1.84
Skills Deepening
Diploma and advanced diploma
2.71
3.25
3.79
Apprenticeships
Various
1.37
1.37
1.40
Traineeships
Various
1.37
1.37
1.84
RTOs could compete on price so long as the tuition fees charged were between the category
minimum and maximum, as shown in Table 3.
Table 3: Application of category minimums and maximums VTG prior to 2012
Minimum
category fee
Foundation
No. hours before
minimum is reached
Maximum
category fee
No. hours before
maximum is reached
$50
46
$500
462
Skills Creation
$105
69
$875
527
Skills Building
$188
101
$1,250
679
Skills Deepening
$375
98
$2,000
527
Apprenticeships
$58
41
$923
659
$188
101
$1,250
679
Traineeships
In addition, there was also an annual maximum tuition fee cap that applied where a student enrolled
in courses in different categories within the same calendar year. In these circumstances, the tuition
fees for each course were calculated separately, but when combined could not exceed a specified
annual cap ($2,000 in 2011).
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