Research
Paper 4
Payment Model
Issues Paper – Payment Model
© 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 Payment Model Issues Paper, Report 4
of 8, Canberra.
Publish date: December 2014
ACT Education and Training Directorate
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Issues Paper – Payment Model
Overview
The payment model refers to the timing and arrangements of payments to registered training
organisations (RTOs) for government subsidies. The payment model for Skilled Capital will be as
follows.

RTOs will be paid at the completion of each unit of competency (UoC) within a
qualification.

The amount that the RTO will be paid on the completion of each UoC will be determined
by the total qualification price, set at the time of enrolment, divided equally across the
number of required UoCs.

If a student drops out partway through a UoC or transfers to another RTO, the original
RTO will not receive any funding. If a student transfers between qualifications within the
same RTO, payment will still be made according to the above criteria.To incentivise
completion of qualifications, a payment will be provided directly to the student on proof
of their qualification completion. This completion payment will be $250 for certificate II
qualifications and $500 for certificate III or above.

Students will need to complete their training within two years of the commencement
date, and no further funding will be provided after that ‘due to complete’ date. If a
student wishes to continue training, they will have to re-enrol in a new training place.
The payment model refers to the timing and arrangements of payments to registered training
organisations (RTOs) for government subsidies. Timing of payments can impact on an RTO’s revenue
and can influence the variability of how and what government subsidised qualifications RTOs provide.
This paper puts forward the preferred payment model for Skilled Capital based on lessons from the
current ACT system and the future needs of the ACT. The remainder of this paper is structured as
follows:

Section 1 sets out the design principles taken into account when selecting the optimal
payment model
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Issues Paper – Payment Model

Section 2 provides a brief overview of the current payment model employed by the Australian
Apprenticeship Program and some drawbacks of this approach

Based on these lessons and the defined principles, Section 3 puts forward the recommended
payment model

Section 4 considers additional design features of the payment model that may encourage
training completions

Section 5 examines how the chosen model should incorporate payment for a student’s
previous learning.
1
Principles for the payment model
After considering the literature as well as the needs of the ACT, four broad principles were identified
to be used to guide decisions about the payment model. They are as follows:

Impact on RTOs: payments should be staged so that an RTO’s receipt of revenues matches its
incurrence of costs. For example, if an RTO incurs a relatively small proportion of its costs
when a student commences training, it should receive an equivalently small proportion of its
revenues at this time. Where possible, the payment model should also avoid providing RTOs
with the incentives to lower the quality or range of the training provided in order to maximise
profits.

Impact on students: payments should be staged to encourage higher completion rates (see
Box 1 for a case study on a recent completions initiative run by TAFE NSW).

Impact on government: payments should be staged to minimise revenue loss.

Administrative burden: the payment model should be as simple and transparent as possible,
limiting any administrative and compliance burden on RTOs and the ACT Government alike.
It is recognised that there are inherent trade-offs between all four principles. For example, a payment
model that provides the best incentives to the RTO to maximise student completions may not be the
most preferred with respect to matching the RTO’s cashflows to expenses. The payment model that
least compromises the achievement of each principle will be the one recommended.
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Issues Paper – Payment Model
Box 1 – TAFE NSW Case Study: Why Worry About Completion Rates?
In 2010, TAFE NSW embarked on a state-wide research project to investigate and address completions
in specific contexts. This case study presents observations from the Increasing TAFE NSW Qualification
Completions project, part of TAFE NSW’s ongoing strategy to improve completions.
An overriding message from the research was that no single factor caused students to drop out.
Ex-students confirmed that discontinuing their TAFE course was not always a conscious decision;
rather they had “drifted off” due to a combination of course, work-related and personal factors. The
research demonstrated that improving completions is the business of everyone in the organisation.
Staff involved in providing course information or support, enrolment services, delivery and
assessment, follow up on students and managing data and reporting all need to be aware of the
importance of improving completions and how they can intervene to improve outcomes. Accordingly,
early intervention is key to identifying and resolving difficulties.
The report found that students are unlikely to complete a qualification if they are enrolled
inappropriately. Students need access to the full range of information to make an informed choice. It
is also important for staff to evaluate students’ capacity to complete their courses, identify those
students who may need extra support with language, literacy or numeracy (LLN) and understand what
students want to achieve from their courses. Some students require a set of skills for work, licensing
or personal reasons, rather than a full qualification. Skill sets may be a more appropriate enrolment
outcome for particular students but organisations need to be able to count industry recognised skill
sets as a legitimate learning completion.
The report demonstrated that the quality of teaching and assessment, and the appropriateness of
teaching and assessment strategies for particular students’ needs are fundamental to increasing
completions. Young school leavers, Aboriginal students, part time students juggling busy workloads
and those students studying in flexible modes may require different strategies or restructuring of
delivery and assessment approaches to maximise their success. Building strong partnerships with
employers is essential to improving apprenticeship outcomes. Partnerships with local community
organisations and agencies can help alleviate external factors impacting on individual students at risk
of non completion. According to the report, flexibility is integral to addressing student needs.
Source: NSW Government in collaboration with TAFE NSW (August 2011) Getting clever about completions –
Increasing TAFE NSW Qualification Completions.
2
Current payment settings of the Australian
Apprenticeship Program
Under the Australian Apprenticeship Program (AAP), the ACT Government currently makes payments
to RTOs in three stages – an Initial Payment, Unit Payments and a Completion Bonus.
2.1
Initial Payment
Under the AAP, the RTO receives a one-off Initial Payment of 15 per cent of the Individual Student
Price (ISP) on submission of an Australian Apprentice Training Plan Report per student, per
qualification. The Training Plan Report is meant as a record of the conversation RTOs should have with
each student upon enrolment. It documents things such as the units counting towards the selected
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Issues Paper – Payment Model
qualification, mode of training and expected completion. RTOs must submit the Training Plan Report
within eight weeks of the approval of the student’s entry into the program.
It is generally recognised that RTOs expend resources prior to the commencement of training to
ensure a good match between student and qualification. A good match is likely to lead to higher
completions and better educational outcomes for students. For this reason, providing a payment prior
to commencement may be justified. However, if tuition fees are also made at the start of the
semester or year, then the RTO’s revenues are likely to be ‘front loaded’. Therefore, timing a portion
of the government subsidy to match the RTOs expense prior to commencement of the qualification
may not be warranted.
A drawback of the current approach has been felt when students transfer between RTOs. Program
guidelines stipulate that the Initial Payment may only be given once, at the completion of the first
Training Plan. If a student then decides to transfer to another RTO before commencement of his or
her qualification, the receiving RTO will not receive an Initial Payment. This may, understandably,
cause frustration for these RTOs.
From the perspective of completions and student satisfaction, allowing students to change their mind
is very important. However, it should not mean that RTOs are out of pocket if they are meeting
outcomes.
2.2
Unit Payments
Under the AAP, the remaining ISP (85 per cent) is paid as Unit Payments upon completion of a unit of
competency (UoC). Each Unit Payment is calculated as the ISP, minus the Initial Payment and divided
by the number of required units for successful completion of the qualification. RTOs must submit a
compliant Australian Apprentice Unit Results Report for units for which payment is claimed. There is
no restriction on RTOs with respect to when the claim is made.
Equation 1 – Calculation of Unit Payments
Unit Payment = [(Individual Student Price – Initial Payment) ÷ minimum number of required units]1
The current approach of Unit Payments is considered to suffer from a number of drawbacks. The
most significant of these is having a qualification funding amount (or ISP) set at the time the AAP was
introduced which does not change regardless of the number of units provided by the RTO.
Historically, when Industry Skills Councils (ISCs) have updated qualifications, and as part of this
process increased the number of UoC needed to complete a qualification, the ISP has not been
updated to reflect this. This has left RTOs out of pocket and is a problem that has been compounded
over the years given that the ISP has not been updated since its inception.
2.3
Completion bonus
Finally, under the AAP, a Completion Bonus of $300 to $500 is paid to the RTO upon successful
submission of a Completion Report. RTOs must submit the Completion Report within eight weeks of
the date that the student is deemed competent.
1
The Individual Student Price is calculated by the ACT Government. The minimum number of required units for
successful completion of a qualification is set by the Industry Skills Council.
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3
Preferred payment model
The preferred payment model for government subsidies has been guided by the principles set out in
Section 1 and lessons of the AAP identified in Section 2.
3.1
Initial considerations
Two initial considerations were made before identifying particular models. There were outcomes
versus output based models, and the appropriateness of funding in arrears.
3.1.1
Output-based vs outcomes-based funding
In assessing the optimal payment model, it was considered whether an output-based (i.e. funding per
student contact hour) or outcomes-based (i.e. funding based on completions of UoCs) would be more
compatible with the National Partnership Agreement on Skills Reform (the National Partnership)
reform objectives and the premise of a contestable funding model that the ACT Government is using
in Skilled Capital.
Both outputs and outcomes models link funding to the provision of training services to students,
however each provides different incentives to RTOs in relation to their students.2 With the current
outcomes-based arrangements currently in place with AAP, RTOs have a clear incentive to encourage
students to undertake training to the point of completion whereas, under an outputs-based model,
this incentive does not necessarily extend to completion.3 Under an output-based model, as long as
students continue to receive training services, RTOs continue to receive funding.4
There is broad agreement that improving the rate of completions is key to raising the education levels
of the wider population, alleviating skill shortages by increasing workforce participation and
productivity to counter the impact of an ageing population.5 However, average completion rates for
skills qualifications have been historically very low. Between 2008 and 2011, estimated national
average completion rates for qualifications at certificate I and above have only increased from
28.9 per cent to 35.5 per cent.6 The ACT has consistently performed above the national average, with
an estimated completion rate of 39.5 per cent in 2011, however the consensus is that more can be
done to lift these rates.7
The skills training sector has committed to national and state targets through the National Partnership
that focus on the number of students completing qualifications. Moves toward a more competitive
training market also necessitates a focus by RTOs on improved qualification completions, as this will
become a determining factor in attracting and maintaining student enrolments. The implementation
2
Essential Services Commission (2011) VET Fee and Funding Review, pg.110.
Ibid, pg.110.
4
Ibid, pg.110.
5
NSW Government in collaboration with TAFE NSW (August 2011) Getting clever about completions – increasing
TAFE NSW Qualification Completions, p.5.
6
NCVER (2013), Australian vocational education and training statistics – the likelihood of completing a VET
qualification, published by the Department of Industry.
7
NCVER (2013), Australian vocational education and training statistics – the likelihood of completing a VET
qualification, published by the Department of Industry.
3
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Issues Paper – Payment Model
of a Unique Student Identifier for skills training students will further increase the focus on
completions as data capture is enhanced.8
Outcome-based approaches would therefore appear to be more conducive with the ACT
Government’s National Partnership objectives and more appropriate within the context of a demand
driven model. In addition, the outcomes-based approach has the advantage of implementation ease
as it is the funding system currently used by the AAP.
However, of potential concern with the outcomes-based model are the perverse incentives raised by
a number of Victorian stakeholders in the context of the Essential Service Commission’s VET Fee and
Funding Review (ESC Review). For example, the Association of Neighbourhood Houses and Learning
Centres contended that a funding approach based on successful completions may encourage RTOs to
grant qualifications of students who are not actually competent.9 Other submissions claim that, with
such funding models, RTOs may have the incentive to be more selective in their enrolments and not
offer places to students who are traditionally at risk high of non-completion.10
While acknowledging these are worthwhile concerns, in the absence of any evidence that such
behaviour is actually occurring, a focus on outcomes should not be compromised. Underlying this
confidence that this is the correct approach is the knowledge that a complete review has been
undertaken of the ACT Government’s quality framework, which includes a much higher focus on
ensuring RTOs are compliant with the objectives and outcomes set out by Skilled Capital.
3.1.2
Funding in arrears
In assessing what the proposed payment model should be, it was also considered whether funding
RTOs in arrears would create financial difficulties for the RTOs concerned, thereby breaking the first
design principle set out in Section 1.
In theory, a funding in arrears payment system should not be of concern in itself. It is common
practice in many industries for businesses to receive payments after the delivery of goods and
services. However, it is also common in some cases for business to receive partial payments in
advance, usually when significant upfront costs are incurred in providing the goods and services.11
RTOs should be able to operate while awaiting payments, so long as they are able to cover their
up-front costs in the interim. Given that tuition fees are traditionally ‘front loaded’ RTOs should have
sufficient revenues to cover any up-front costs incurred in the provision of training.
Nevertheless, given a lack of data around this, it cannot be said with certainty that the lag between
when an RTO’s costs are incurred and when that RTO is compensated will not create cash flow
difficulties. It is therefore recommended that this is monitored through the initial stages of Skilled
Capital.
Based on these initial considerations, the options considered are predominately outcomes based and
based on funding in arrears. Fundamentally, there are two different payment models that meet this
criteria – a per qualification model or a per unit model.
8
NSW Government in collaboration with TAFE NSW (August 2011) Getting clever about completions – increasing
TAFE NSW Qualification Completions, p.6.
9
Essential Services Commission (2011) VET Fee and Funding Review, pg.111.
10
Ibid, pg.111.
11
Ibid, pg.112.
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Issues Paper – Payment Model
3.2
Per qualification models
A per qualification model means that the funding amount is set at the qualification level, and at the
point of the student’s enrolment. The funding amount is based on the qualification undertaken and
the associated subsidy.
Within the per qualification model, there are options regarding the staging of the payments, three of
which are considered below. Although these may be based on completion of UoCs, it is important to
remember they still represent a per qualification model, as the total amount of available funding is set
at the qualification level, the following are just options of how best to distribute that total amount.

The first is a milestone formula (used in programs such as Priorities Support Program and
Better Linkages). This is not linked to the UoCs but would have an initial payment, a progress
payment and a completion payment. An example distribution would be 20 per cent of the
total funding on enrolment, 60 per cent at the mid-point of the qualification and 20 per cent
on proof of completion of the whole qualification.

The second is an equal per unit formula. This requires payments to be made to RTOs upon
completion of each UoC. The per unit payment would be calculated as the total qualification
amount (determined on enrolment) divided by the number of UoCs in that qualification
(number of UoCs is a nationally agreed number and cannot be altered by the RTO).

The third is a weighted per unit formula. Again, payments would be made to the RTO upon
completion of each UoC. However, the per unit payment would be weighted differently
according to the number of hours associated with the delivery of that UoC. These weighted
amounts would sum to the total qualification amount determined on enrolment.
These per qualification models were assessed against the identified design principles as below.
3.2.1
Impact on RTOs
None of these three variants has an exact match between the RTOs’ receipt of revenue (government
subsidises) and costs incurred in the delivery of government subsidised training. This issue is the most
pronounced with the milestone formula, as it is not directly linked to the delivering of a UoC at all.
The equal per unit formula also shares this issue, though not to the same extent, as it does not take
into consideration how time intensive a particular UoC is and therefore how costly it is relative to
other UoCs.
In theory, the use of the weighted per unit formula allows for the matching of revenue and costs.
However, RTOs in the ACT are not required to adhere to any minimum student contact hours, and so
an assumption would have to be made about the number of hours taken to deliver each UoC in order
to set the weightings, which may or may not align with reality.
Additionally, as the total funding amount is set at enrolment, there is a possibility that over time this
will not reflect costs, even if a correct weighting formula was applied to it. Setting the total amount at
enrolment, also limits flexibility for RTOs to add and subtract UoCs if the students changes their mind,
or if Industry Skills Councils change the UoCs required under a certain competency. All costs as a
result of these changes would be borne by the RTO and result in a mismatch between revenue and
costs.
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Issues Paper – Payment Model
3.2.2
Impact on students
Funding the same amount for a particular qualification regardless of the specific UoCs delivered can
create perverse incentives. This is because some RTOs could cut elective UoCs from their curriculum
that are more time intensive and more costly to deliver. In a demand driven funding model, designed
to provide more choice to students, this result would be counterintuitive. More importantly, the
quality of a student’s education may suffer.
Because the total amount funded is capped at enrolment in all per qualification models, this impact
would be the same under the milestone, equal per unit and weighted per unit formulas. However, it
should be noted that an initial calculation undertaken by the ACT Government revealed that around
70 per cent of Training Packages are generally made up of core UoCs, compulsory for the student to
meet competency standards. This may mean that the scope for the above perverse incentives to arise
may be limited and not of high concern.
3.2.3
Impact on government
The per qualification model (with milestone, equal per unit or weighted per unit formulas) caps the
total funded amount at enrolment. This means there is certainty in government payments.
In equal and weighted formulas, by paying at the completion of each UoC, the chances of the ACT
Government paying for training not delivered are minimised. With an equal formula there is a
possibility that a student might drop out having only completed the least expensive UoCs and the ACT
Government may have expended more than delivered. However, this should equalise over a fully
delivered qualification.
With the milestone formula, the risk of money wastage to the ACT Government is the highest. Under
the funding formula identified above, if a student were to drop out of their qualification one day after
the midpoint payment, then the ACT Government would have effectively paid out 80 per cent of the
qualification funding amount without achieving its educational objectives with respect to student
completions.
3.2.4
Administrative burden
A per qualification model requires low to no implementation costs, as the payment model is currently
in place for AAP. This model would require little system changes and could be rolled out quickly.
However, there would be a requirement in per qualification models that RTOs’ develop and submit a
Training Plan at the enrolment of each student. This allows the ACT Government to plan out when
payments will be made, but does add a level of compliance costs for RTOs.
The per qualification model, especially for a weighted per unit formula, currently has mixed levels of
understanding and support amongst stakeholders. A weighted per unit formula is not as straight
forward as the equal per unit formula and might create additional confusion for RTOs. This confusion
may translate into greater complaints and calls for assistance to the ACT Government, which may in
turn be a burden on internal resources. The equal per unit formula has the benefit of simplicity and
transparency. The milestone formula is also simple to understand, though may lack the transparency
in the rationale behind the formula used to distribute the payments.
There may also be some sustained (although low) ongoing costs with these models for the RTO to
conduct reporting on when a payment is due (either on completion of each UoC, or to prove the
mid-point of training). This should be in line with what is currently required under AAP.
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Issues Paper – Payment Model
3.3
Per unit model
The second typical payment model is based on a per UoC model. This compensates RTOs at the
completion of each UoC provided for a government subsidised qualification. At completion of each
UoC the RTO would report to the ACT Government which UoC had been completed and the ACT
Government would pay out the price of that UoC from a national list of standardised pricing, informed
by the relevant subsidy on the ACT Skilled Capital Qualifications List.
This model was also assessed against the identified design principles as follows.
3.3.1
Impact on RTOs
A per unit payment model allows for a closer match between RTO costs and receipt of government
funding. It also allows RTOs more flexibility to add or subtract UoCs depending on fluctuating student
need and industry requirements.
3.3.2
Impact on students
In all of the payment models, there may be a situation where two students undertaking the same UoC
may result in the RTO receiving different payments from the ACT Government because one is
undertaking the UoC under a qualification with a higher subsidy than the other. However, the
perception of this issue would be much more obvious in a per unit payment model, because the RTO
is receiving a different percentage of the same unit price (i.e. for $100 UoC, RTO receives $50 for one
student and $60 for another). In a per qualification model, both the unit prices and subsidies will be
different and the prices remain parts of two different wholes, rather than directly comparable (i.e.
one qualification is $1000 for 10 UoCs, so $100 a UoC, with a subsidy rate on that, while the other is
$1500 for 5 UoCs, so $300 a UoC, with a subsidy rate on that). A per qualification model would
require prices for each qualification to be published. In a per unit model, multiple prices for the same
UoC would have to be published, depending on which qualification a student is enrolled in. With this
clear information, the incentive for RTOs to push students into UoCs under higher subsidy
qualifications will be much more obvious.
However, with respect to the core objectives of Skilled Capital, this is not necessarily a negative
finding. The higher on the ACT Skills Needs List a qualification is, the higher the skills need and public
value attached to that qualification and therefore the higher the government subsidy rate. To
incentivise students into that qualification is one of the objectives of these subsidies. Additionally, this
is an issue regardless of the payment model, a per unit payment model simply highlights it.
This issue would occur, because of the fundamentals of the per unit model, if no specific policy design
was made to alter it. If a per unit model is the preferred option, it may be possible to put a
mechanism in place to ensure that it does not occur. However, this will most likely involve altering the
subsidy rates away from those published on the ACT Skilled Capital Qualifications List, i.e. by ensuring
that all students enrolled in a UoC receive the same funding amount, a subsidy rate will have to be
assumed for that UoC, even if the students are in different qualifications.
3.3.3
Impact on government
The per unit model has a low risk of revenue loss as costs are capped. In addition, by paying at the
completion of each UoC, this model minimises the chances of the ACT Government paying for training
not delivered.
However, this model may create difficulties in tracking budget spending due to the increased
flexibility in UoC choice. Under a per qualification model, the ACT Government can predict the total
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Issues Paper – Payment Model
payments required for a student upon enrolment. However, under a per unit model, government
funding amounts will vary according to an individual’s choice of UoCs. This makes total funding harder
to predict and any cost risks associated with changes to UoC choice will be borne by the ACT
Government.
3.3.4
Administrative burden
This model’s biggest drawback is the administrative effort required to implement it. As discussed
above, the per unit model represents a less predictable flow of payments. The ACT Government will
only know the amount to be paid once they have confirmation of which UoC has been completed. The
ACT Government’s IT payment system is currently unable to make payments per unit in this manner.
Therefore to set up a per unit payment model would require an investment in new infrastructure,
making this option prohibitively expensive in terms of initial administration costs.
3.4
Preferred payment model
Table 1, below, shows a comparison of the payment models, assessed against the design objectives. A
tick means the model meets the objective and a star means that the model partly meets the
objective. A cross means that the model does not achieve the desired objective.
Table 1 – Comparison of payment models
Per qual
Milestone
formula
Per qual
Equal
formula
Per qual
Weighted
formula
Per unit
Impact on RTOs – Costs and funding matched

*
*

Impact on RTOs – Limited risk of delivering training not
paid for




Impact on students – Limits perverse incentives




*
*
*

Impact on government – Predictability of payments




Impact on government – Limited risk of paying for
qualifications not delivered

*


Administrative burden – Required systems are available




Administrative burden – Easy to communicate to
stakeholders



*
Impact on students – Limited pressure from RTO to be in
higher subsidised qualification
Considering all the discussion above, it is recommended that a milestone formula for a per
qualification model is not optimal for Skilled Capital. This is because it potentially has the largest risk
of government funding being provided for training not actually delivered, as well as scope for the RTO
to bear costs of training delivered but not paid for. Neither of these possible outcomes are equitable
or desirable.
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Issues Paper – Payment Model
However, as shown by Table 1, the comparative merits of the other three options (a per qualification
model on an equal or weighted formula and a per unit model) against the guiding principles are less
clear cut. All three have moderate levels of RTO revenue and cost matching through a link to payment
on completion of UoC (see the top row) and all three have a cap on government spending, either at
the qualification or UoC level (see impact to government rows).
A per unit payment is not recommended because it is currently not supported by the ACT
Government’s IT system. To overcome this would be very costly. There is also a perception issue
around students in the same UoC having different unit payments.
A per qualification model on a weighted formula is also not recommended due to the inability to
accurately come up with a weighting formula. The ACT does not currently have requirements for RTOs
to deliver a specific number of student contact hours per UoC, which was the basis of such formulas
in other jurisdictions. The weighted formula also has perception and transparency issues.
Therefore, the recommended approach is a per qualification model on an equal per unit formula. On
preponderance of the benefits and detractions, the only issue with this model is the possible
incentives away from RTOs offering more time intensive and costly electives. It is possible however,
given that electives make up only a small percentage of a total qualification, that this issue will not be
noticeable.
To receive funding for each UoC completed, it is recommended the RTO be required to submit an
AVETMISS file. If a student drops out partway through their UoC or transfers to another RTO, the RTO
should not receive any funding. If the student is to transfer between qualifications within the same
RTO, payment should still be made according to equal per unit formula (although the total
qualification price will change).
4
Completion incentives
Two mechanisms are recommended for inclusion in payment arrangements to act as completion
incentives. The first, completion bonus, is a positive incentive, while the second, ‘due to complete
dates’, act as a disincentive to delay completion. The development of these mechanisms is discussed
below.
4.1
Completion bonus
As discussed in Section 2 of this paper, completion bonuses have been previously used to drive the
outcomes of AAP. While it is acknowledged that completion matters and is a key objective of the
National Partnership, there is little evidence that a completion bonus paid to RTOs will lead to greater
student completions in VET. This is particularly the case since the evidence reviewed suggests that
many of the drivers of completion rates are outside of RTO control (see Box 1).
RTOs rely on their reputation for providing quality training to attract students and generate revenue.
Providing a completion bonus to incentivise RTOs to undertake activities they should be already doing
could be viewed as providing funding for nothing and an inefficient use of resources.
Instead, it is recommended that a bonus be provided directly to the student on completion of a
qualification under Skilled Capital. This should be a better use of resources as it directly targets
current students to stay in training to completion and is potentially a more cost effective way to
increase training attainment. Furthermore, a program that incentivises current students is potentially
more effective than targeting new students as the current student is already in the system and has
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demonstrated desire to undertake training. Programs that have to incentivise new students to enrol
in training may not reach the same motivated demographic.
The bonus payment is able to be made under existing payment arrangements. It will be
administratively more efficient to pay directly to the students than to the RTO to distribute to
students because, despite higher volumes of transactions, paying to the RTO would then require
audits to ensure the payments are reaching their intended targets.
As the completion bonus would be paid to all students, including those who would complete
regardless, the value of completion bonus needs to be modest enough as not to place unnecessary
financial liabilities on the ACT Government and fit within budget constraints, but substantial enough
to change behaviour. It is recommended that the bonus should be $250 for each student completing
a certificate II qualification and $500 for a certificate III or higher. These amounts are based on those
currently paid to RTOs under the AAP and informed by the Budget Impact Cost Model which examines
the financial implications on the ACT Government.12 These amounts and the impact on the Budget
Impact Cost Model should be monitored longer term to assess any impact of the bonus on student
completion rates.
4.2
Due to complete dates
As a disincentive to delay completion, an option is to impose a ‘due to complete date’ that is set on
enrolment in a qualification and have funding linked to that timeline.
A due to complete date could have several different impacts on RTO behaviour. As discussed above,
RTOs should already have an incentive to encourage completions as they rely on their reputation to
attract students and generate revenue. Linking their funding to reasonable completion timelines does
not reward behaviour they should already be undertaking, but reinforces that completions are in the
interest of RTOs.
It is possible, however, that a due to complete date may provide incentives for RTOs to push students
through to completion that are not ready simply to obtain more funding, at the detriment of the
student’s outcomes. It could also lead to RTOs favouring some students over others if there is a
perception that a student may take longer to complete or require additional assistance to overcome a
specific disadvantage. However, it should be noted that these issues already exist in a system that is
outcomes based, as Skilled Capital is, though a due to complete date may accentuate them.
It is also likely that RTOs already have internal mechanisms to ensure that students are actively
pursuing their qualifications and may withdraw those that are not currently undertaking UoC or who
are repeatedly failing. From this perspective, a due to complete date may not be adding anything to
what an RTO already does, and as such, should not change their incentives.
As with RTOs, the impact of students would be to further reinforce the importance of outcomes
inSkilled Capital. If the impact on RTOs is unlikely to be any different to existing incentives, no change
should flow through to students either.
From a government perspective, a due to complete date allows for Skilled Capital to be constrained
within a limited timeframe and budget. If no limit is placed on how long a student has to complete
12
The Budget Impact Cost Model is an internal model developed by Training and Tertiary Education to
determine the overall cost of the Skilled Capital program and assess the cost impact of various specific policies
within the program.
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their qualification, the ACT Government could be left with outstanding funding liabilities for years in
to the future.
As incentives for RTOs and students are unlikely to change because of a due to complete date, the
restriction and predictability of government liabilities becomes central. As such, it is recommended
that students undertaking a government subsisidised qualification under Skilled Capital should
complete their training within two years of the commencement date. If a student has not completed
before the due to complete date, the student’s contract should be cancelled and no further funding
provided. If the student wishes to continue training, they should have to re-enrol into a new training
place. Providing for the possibility of re-enrolment means that students should not be negatively
affected if they are still genuinely pursuing their training. However, it means that the ACT
Government only has to commit to two years of funding at a time.
5
Previous learning
An additional consideration in the payment model is what arrangements may be made with regard to
government funding for recognition for prior learning and credit transfers.
5.1
Recognition for prior learning
There may be a case where a potential student wants to undertake formal training for a qualification
which they already have some skills in, through previous training, work experience or other more
informal mechanisms. In these cases, there is economic benefit for both the individual and the ACT in
formalising these existing skills and building on them to amount to a skills qualification. However, if
potential students were required to undertake and pay for UoC that are teaching skills they already
possess, this might disincentivise them from undergoing training at all. This would be against
objectives of Skilled Capital.
Recognition for prior learning (RPL) is a formal assessment and recognition of existing skills and allows
students to be exempt from unnecessary UoCs that would duplicate previous learning. This
assessment comes at a cost for RTOs, as it may include examining evidence such as references from
past employers, client testimonals and work samples.13 Students may currently be charged for this
assessment, for example, at CIT students are charged at the normal rate for the UoC they are applying
for recognition in, subject to a cap.14
It would disadvantage students with previous learning if RPL was not funded under Skilled Capital, as
they may still be required to pay a full fee and those students may look less attractive to RTOs
because they attract less funding but still incur costs to assess (anecdotal evidence suggests the cost
of an RPL assessment is equal to the cost of training). The Skilled Capital initiative would suffer if these
particularly capable potential students were not provided for.
However, it is also recognised that if RPL were to be fully funded, it could have the potential to be
misused, as RTOs would be able to be funded for training that they do not need to deliver. This could
lead to RTOs preferencing students with prior learning over new students, or it may create an
incentive for RTOs to assess students as capable in skills they do not necessarily possess. Moreover,
13
IPART (2013) Final Report – Pricing VET under Smart and Skilled, pg 152.
Canberra Institute of Technology (2014) Skills Recognition – Your experience counts, available at
http://cit.edu.au/study/status.
14
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the focus of Skilled Capital is to lift the productivity of the ACT through training and not the formal
recognition of training. Both methods increase productivity yet the marginal gain from training is
greater than the gain from recognition of training.
Weighing this up with the benefits of including students with previous learning, it is recommended
that RPL is funded at 100 per cent of the UoC value in recognition of the cost of assessment and the
value of previously skilled students but can only be claimed on a maximum of 50 per cent of the total
qualification, to counterbalance any perverse incentives.
5.2
Credit transfers
A credit transfer is recognition of an equivalent UoC studied under a different qualification or at a
different RTO. Unlike RPL, the formal training has actually already been delivered. As such there is no
need for government funding to act as enticement into training. Also, it is generally recognised that
there are few additional costs associated with granting a student’s credit transfer. Therefore, it is
recommended that no government funding should be available for credit transfers.
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