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Education and Employment Legislation Committee
07/10/2014

JACOBSON, Mr Warren, Managing Director, Study Group Australia P/L (incorporating ACPE Limited)

ZIMMERMAN, Ms Helen, Group General Manager, Government and Stakeholder Relations, Navitas Limited

[13:45]

CHAIR: Welcome. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. The committee has your submission, Ms Zimmerman. I now invite you to make a short opening statement and, at the conclusion of your remarks, I will invite members of the committee to put questions to you.

Ms Zimmerman : Navitas appreciates the opportunity to appear before the committee. Navitas is Australia's largest and most successful private education company. It is a great Australian success story, currently listed on the Australian Stock Exchange as an ASX 100 company. From very small beginnings in Western Australia, Navitas now has 120 colleges in 27 countries, employing 5,800 staff. Last financial year, Navitas colleges delivered education to around 26,000 tertiary students in Australia, approximately two-thirds of whom were domestic students. The overwhelming majority of Navitas's revenues are from full-fee-paying students, both domestic and international.

Navitas makes a considerable contribution to Australia, Australian institutions and the highly deserved reputation of the Australian international education industry. Last financial year, Navitas contributed $159 million to university and consortia partners under royalty and contract arrangements. The contribution Navitas makes to its university partners is significant. Since 1994, those arrangements have delivered to partner universities approximately $900 million in royalty fees and around $2 billion in flow-on student fees from international and, increasingly, domestic students recruited and taught by Navitas who pathway successfully into years 2 and 3 of degree programs.

Last financial year, payments to teaching and academic employees were $201 million, payments to shareholders via dividends were $73.2 million, and $65.2 million was reinvested in depreciation, amortisation and retained earnings, and Navitas returned $32.1 million to the government in income tax. The Navitas Education Trust funded education related projects in Australia, Cambodia, Nepal and Sri Lanka, with Room to Read and the Australian Business and Community Network. Navitas also funded $1.7 million in scholarships, and students and staff volunteered more than 4,000 hours to support community based projects.

Navitas strongly supports the Higher Education and Research Reform Amendment Bill 2014, with the exception of indexing student debt to the 10-year government bond rate. The reforms are much needed for a number of reasons, firstly because they will significantly benefit disadvantaged students. I am referring to the tens of thousands of higher education students who choose to study at a non-university higher education provider and who, under the current system, cannot access a Commonwealth supported place. These students pay full fees and, in accessing FEE-HELP, are charged a 25 per cent loan surcharge. This additional financial burden is also likely to be a factor in limiting the freedom of those from low socioeconomic backgrounds or those working in low-paying jobs to choose the most appropriate courses for their career aspirations and life circumstances.

Secondly, non-university higher education providers are arguably better at delivering sub-bachelor programs for students from low-SES and other non-traditional backgrounds, by providing: a lower student-to-teacher ratio; strong orientation, cultural and peer support systems; additional contact hours per subject per week, which embed learning skills, applied skills and/or industry linkages; one-on-one advising and ongoing support to manage academic performance and course selection; and early identification of students at risk, with supplementary instruction. These programs provide students with a successful transition into degree studies or into skilled employment. Navitas as a company has a proven track record over two decades and, in the case of some of its operations, over three decades in doing this. Expanding uncapped funding to sub-bachelor qualifications, offering Commonwealth-supported places to all students, harmonising the income contingent loan schemes and introducing the new scholarship scheme will strengthen access, choice, fairness and equity.

Thirdly, these reforms are vital if we aspire to have a broadly educated population with relevant skills, knowledge and abilities that prepare Australians for living, working and competing in a globally and digitally interconnected world, a world in which we continue to be a preferred destination for international students and an essential partner in global research and business collaborations. Our current system is unlikely to deliver this result due to the increasing costs of greater participation in higher education, the decreased ability of governments to fund those costs, budget cuts to education funding by both sides of government and the inability of universities to raise additional revenues through increased fees. Fee deregulation will increase competition between providers and will increase choice for students. There will be diversity in fees charged between institutions, as currently exists in international education and postgraduate courses. Fee deregulation will lead to improvements in quality as providers seek to focus on and invest more in market differentiation, teaching and learning, and student support services to attract students.

Universities do not necessarily offer courses in niche specialisations for new and emerging skill sets or new industries. Private providers have the ability to be more agile and innovative in responding to changing work force requirements. Ultimately, fees will be judged by consumers with respect to value for money, which will ensure a responsible approach to course fee setting. Navitas believes quality providers, public and private, will be very careful not to endanger Australia's international education system or the reputation of Australian higher education by fee gouging. The reputational risk and community opprobrium would be too high. No organisation can deliver sustained growth without a commitment to fair and shared returns with its communities of engagement. However, to ensure that learners can make informed choices, it will be imperative that they have access to detailed, timely and accurate comparative information on providers, including their costs, courses and graduate outcomes.

Navitas does not support the proposed changes to the indexation rate on HELP loans. It is clear that this change will disproportionately impact low-income earners and those who take time out of the Labor force, particularly women. Navitas has two core capabilities which bring benefits to Australian higher education. Firstly, we are leaders in providing pathways into education and through education for individuals who are non-traditional learners or those who are at a disadvantage. These are students from migrant or refugee backgrounds, first in family to enter tertiary education, not suited or alienated from traditional educational institutions, mature age learners, those seeking more support or a staged entry to higher education and also, importantly, international students who bring so much to Australia.

We excel also at working in partnerships that add value to all stakeholders—students, partners, government, communities, staff and shareholders. Our collaboration with Australian universities attests to this and demonstrates the benefit of public-private education partnerships. One worry is that the synergies and benefits to Australia of collaboration between public, private and not-for-profit institutions are being lost in this debate. Thank you for the opportunity to appear before you.

CHAIR: Mr Jacobson, do you wish to make a short statement?

Mr Jacobson : Thank you for the opportunity to represent the non-university higher education providers here today. Study Group is a leading international provider of preparatory programs for higher education courses, career education and English language programs. Each year, Study Group delivers programs to more than 50,000 students from more than 145 countries, including more than 5,000 Australian students. Programs include high school, university foundation and higher education diplomas, often as a bridge to university study but also vocational training and higher education bachelor and postgraduate programs. Whilst we too partner with and contribute to a number of prominent Australian universities in pursuit of their strategic objectives, the orientation of our evidence today will reflect the experience of our college, the Australian College of Physical Education, which is a registered higher education provider.

The Australian College of Physical Education is one of the oldest and most respected non-university higher education providers in the country. It was founded in 1917 as a physical education training institute for young women and soon developed a reputation for producing outstanding teachers. Male students were included in 1971. ACPE was awarded its first bachelor degree in 1990. It became an approved higher education provider in 2004. As a registered higher education provider, ACPE is subject to the same stringent regulatory requirements as universities, having been subject to audits by the Australian Universities Quality Agency under the former regulatory regime and today to registration by TEQSA. The college currently enrols in the order of 1,000 students across six degrees in sport, physical education, dance, health, science, and related disciplines. Whilst I have no intention to do so it would be remiss of me not to read an unsolicited email received just three days ago from a student, who is to graduate towards the end of this year in our Bachelor of Sports Coaching and Administration degree, as a means of contextualising the role that we play as a non-university education provider. The email was sent on 4 October to Bradley Royall, the course convener of our Bachelor of Sports Coaching and Administration. The subject title is 'Thank you':

Hi Brad,

Three years ago I enrolled as a student of ACPE. At this particular time in my life I lacked direction and was unsure of the path I wanted to travel. I have never been academically motivated nor had the discipline needed for academic studies. University was something I never wanted to be part of and something I never believed I would have the capacity to complete. And so I'm not exactly sure how or why I stumbled across ACPE but I remember thinking 'What do I have to lose'? It's funny how one little decision can shape your entire life.

My journey through ACPE has helped me mature and grow and played an integral part in defining who I am as a person. The education and support I have received over the past three years has meant the world to me but even more so in the life lessons in which I have learned from attending your classes. Recently I have been appointed as the general manager of the Ryde Bulls basketball team. I've grown to become extremely passionate about sports administration and in terms of my career this is precisely the path I want to head down. Alongside this I'm also employed as the head of basketball—

he then names a prominent Sydney private school—

Brad, if it was not for you and ACPE I would not be where I am today. Everything I have accomplished so far in my career I owe to you and the college. Thank you for the time and effort you put into every day and every lesson. You have changed my life.

This is a student you graduated from school in 2007 and did not engage in formal higher education until 2011. This is precisely the type of student who is materially disadvantaged by the current funding regime. This student sits alongside the more than 50 per cent students who engage with us who are non-school leavers participating in higher education for the first time or who are from low-socioeconomic catchment areas that deserve the most equity. We have a firm philosophical view that success in your ATAR, your HSC, your VCE should not define success in life. Why should those students who do not get direct access to university or who choose a non-university provider in response to the unique support and study experience that we provide or the support that they need be penalised for that choice in the absence of any funding subsidy and the levy of a 25 per cent administration loan fee.

It is in this context and in support of the principles of equity, choice and diversity in higher education that Study Group International and its constituent colleges support the provisions of the Higher Education and Research Reform Amendment Bill, subject to limited amendment. Whilst we did not make a submission on the HERRA bill our position was represented by the submission made by industry bodies, including the Council of Private Higher Education, of which we are member. Specifically, we support fee deregulation that we believe will support innovation, differentiation, specialisation and competition in what has been described by some as a homogeneous sector preoccupied by rankings that do not reflect the idiosyncratic needs of different student groups. We do not support the contention that fee gouging is a likely outcome of fee deregulation as this fails to acknowledge the influence of market forces and the ability of students to vote with their feet. We believe in a fair exchange of value where higher education providers will need to convince more-educated consumers of the benefit of one education over another. Being able to charge a market-based fee related to the cost of provision will enable providers to make the best investment decisions that promote these macro objectives.

The extension of government subsidies to diploma (advanced), diploma and associated degree courses is supported, with evidence indicating that access to sub-bachelor qualifications as a pathway to degree study promotes better student preparedness for success in higher education for non-traditional students.

We support the extension of government subsidies to TEQSA-accredited non-university higher education institutions. Non-university higher education has always been a credible alternative to university study and has grown significantly, with enrolments in non-university providers up from three per cent of higher education enrolments in 2000 to nine per cent in 2012, notwithstanding the uncapping of places then. The evidence reflected in our student testimonials suggests that nonuniversities have been chosen for a variety of reasons, including the specialist nature of programs, the flexibility in delivery models, the practicality of programs, small class sizes and ties to industry. It is inequitable that students making this choice in bachelor or sub-bachelor higher education study should be subject to loan fees or the absence of Commonwealth support that may make those choices punitive.

We support the consolidation of the existing loan scheme and removal of the FEE-HELP loan fee for reasons of equity and administrative efficiency. We support the establishment of the Commonwealth scholarship scheme to support disadvantaged students, with the rider that the scheme be administered at an institutional level to ensure funds are allocated in a manner that best supports the nature of the students supported and the programs delivered by the providers. It is noteworthy that ACPE today has a comprehensive scholarship program to which 2.7 per cent of every dollar of revenue generated is applied. Study Group do not, however, support the indexation of student debt to the bond rate, which in many submissions to date has been acknowledged as regressive, and we support maintaining the current consumer price indexation.

In summary, Study Group and its constituent colleges believe that the proposed Higher Education and Research Reform Amendment Bill will promote wider choice in, and wider and more equitable access to, quality, appropriately differentiated and specialist higher education that is in the best interests of prospective students, industry and the wider community. Thank you.

CHAIR: Thank you very much for those comprehensive statements. Senator Back.

Senator BACK: Thank you both for your presence this afternoon. In evidence earlier this morning, we were warned off privatisation in the higher education sector, with examples given from non-university private providers in the United States and one in Australia, Melbourne University Private. You no doubt would have seen that submission as well, and I would ask you for your response. There were also comments made at different times: 'dodgy providers', 'bum-crack colleges' et cetera. I am very, very keen for your response to this committee in terms of the private provision of higher and tertiary education.

Ms Zimmerman : Navitas does not believe that there will be a flood of low-quality, rent-seeking colleges entering the higher education system if we maintain a strong regulator and students are able to make informed judgements and choices regarding providers. Competition is a good thing. It will enable students to have more choice in when, how, what and where they learn. We have TEQSA, the Tertiary Education Quality and Standards Agency, and the Higher Education Standards Framework. TEQSA currently regulates all higher education providers, of which 131, I believe, are not universities.

The process for becoming a higher education provider is the same for all. We all have to meet the same standards. It is rigorous, it can take up to 12 to 18 months, and maintaining registration requires continuous investment in quality assurance and improvement. I also think the new QILT, Quality Indicators for Learning and Teaching, and the vastly improved MyUniversity website, as well as word of mouth and social media, will lead to informed and active consumers. I think there is a lot of scaremongering around what is going to happen, but Australia has a completely different system to the United States, for example. One of the bedrocks of that is our income contingent loan scheme and the fact that students are not paying upfront and they do not need to repay until they reach an income threshold level.

Senator BACK: I do not know if either of you are involved in the private provision of technical and further education, but evidence that this committee received in the past in Victoria points to instances in which there was literally flooding of some programs by private providers and clearly, as I understood the evidence presented to us by others, there just were not the jobs at the end of it. Can you comment from a private provider's point of view as to what safeguards might be in place to ensure we do not see that sort of circumstance? That might be appealing to a student but there are very limited opportunities for employment commensurate with what the cost may be of undertaking that course.

Mr Jacobson : I think the first comment to make is that the, if you like, barriers to entry to operate as a private non-university higher education provider are materially higher than those that exist today to operate as a vocational education and training provider. I think today there are in the order of 150 non-university providers of higher education. The preponderance of them are still either not-for-profit industry associations, institutes or theological colleges. So actually there is a very small number of what might be construed in the context of your question as private providers of non-university higher education for profit. I think that is the first comment to make.

In relation to the nature of courses and employment outcomes, providers, whether they are public or private, are subject to the same hurdles in that regard, in that we all need to demonstrate that as an outcome of participation in the programs that we offer that graduate outcomes are a deliverable. Frankly, to the comments made by my colleague earlier, I think that will be part of the basis on which going forward students increasingly make decisions. So the market will place an onus on providers to better demonstrate employment and graduate outcomes as a function of completion in qualifications.

Senator BACK: You made the point that the international and the national reputation of our higher education sector is critical, whether it is publicly provided university, private university or the non-university sector. Are you satisfied that TEQSA and QuILT are adequate to provide over time that level of protection and reputation by providers that the community expects? Should there be other mechanisms in place or should there be enhancements of those that exist?

Ms Zimmerman : I will give the example of the international education sector. For over 30 years it has been a collaborative sector in reality between public, private and not for profit. In another guise I am the President of the International Education Association of Australia. Our peak body works with the other peak bodies—Universities Australia, ACPET, COPHE, the schools and TAFE Directors Australia. Our whole focus is on good public policy that protects our industry and produces outcomes for the students. I suspect that the same thing will happen in the domestic sphere—that we will see all of the good peak bodies and the good private and public providers working together. So, in terms of whether we need other mechanisms, we have the ESOS framework, QILT and TEQSA and, for the vocational sector, we will have ASQA. I think we have a very strong framework which Australia should be very proud of. I think there is a commitment on all good providers to work to ensure that Australia's reputation is not damaged.

Mr Jacobson : I acknowledge and support everything that my colleague just said in relation to the multifaceted way in which the industry is held to account. What is fundamental, though, is that the regulators have the resources available to them not only to hold participants to account but also to have the teeth to be able to apply the stick that drives the appropriate outcome. I think there has been maybe some scepticism on the availability of resources to ensure that the regulations are apply equally and uniformly across the sector.

Senator BACK: Is it Navitas or is it the sector that pays $900 million—

Ms Zimmerman : Navitas.

Senator BACK: per annum in royalties?

Ms Zimmerman : No, not per annum. Since 1994, with its university partnerships and collaborations, Navitas has paid $900 million in royalty fees.

Senator BACK: That $200 million of staff salaries, was that again since 1994?

Ms Zimmerman : No, that was last year.

Senator BACK: That is per annum. You went on to claim that one of your core capabilities is to be a leader in pathways, particularly for non-traditional learners. How do you perceive the relationship to be between yourselves and the university sector—again, both public universities and privately operated universities?

Ms Zimmerman : I think it is a very healthy, collaborative and respectful one. We are a partner with nine Australian universities. We recruit. We deliver the equivalent of the first year of the degree as a pathway into Australian universities and, to an increasing extent, also deliver to domestic students that pathway into those universities. I think it is respectful. I think it is strong. I think it brings benefits. It is quite synergistic, in fact, because it brings benefits to students, to Navitas and to universities. It also provides opportunities for underemployed adjunct academic staff in universities, who are the staff that we employ to deliver the courses.

Mr Jacobson : I would echo those sentiments entirely. We, too, have relationships and very close collaborative partnerships with a number of Australian universities. We have five university partners in Australia. We have a number of additional partnerships in key Anglophone education destination markets of New Zealand, the UK and the US. Certainly, we have found as a consequence of the emergence of this draft piece of legislation that the willingness and appetite on the part of our existing partners to engage in discussions that go beyond what have been narrowly confined partnerships directed principally at the provision of pathways to non-traditional students into bachelor education study is building momentum and there seems to be a willingness to enter into broader relationships.

Senator BACK: There has been concern expressed of course as to what might happen with tuition fees should the legislation be passed by the parliament. Can you give us an appraisal, from your institutions' points of view, on what is likely to happen to tuition fees should the legislation pass.

Ms Zimmerman : Navitas has 14 higher education providers in Australia: two in niche specialisations—creative media, health, criminology, counselling, psychology and social work—and 12 which have a partnership arrangement with Australian universities to deliver pathways and in three cases to manage an off-site campus of the university. Given that the legislation is still to pass parliament and many of the elements and details of the package are yet to be finalised, it is too early to make definitive statements. We can say that we believe the majority of domestic students will pay significantly less for their education. As an example, early stage modelling suggests that an SAE student in 2016—SAE is an institute of creative media—using FEE-HELP to finance their degree will have a debt which is probably around 40 to 45 per cent lower under the new legislation compared with the current situation. In terms of fees, again, we think it is too early to say. Each of our higher education providers has its own specific circumstances, market positioning and mix of courses and cost base. So we actually believe that students will be better off, and we do not believe there will be fee gouging, for the reasons I outlined.

Senator BACK: Chair, if there is time at the end I have other questions but in the meantime I defer to my colleagues.

CHAIR: Thank you, Senator Back. Senator Carr.

Senator KIM CARR: An issue that has been raised with us is the difference in approaches from the public and private sectors to university. Ms Zimmerman, how many teachers do you employ?

Ms Zimmerman : In our higher education courses?

Senator KIM CARR: Yes, in higher education.

Ms Zimmerman : I actually do not have the number in higher ed; I have given you the number across Navitas. All our teaching is performed by appropriately qualified staff.

Senator KIM CARR: I am sure it is. But how many would it be?

Ms Zimmerman : Across the group, it is 5,800 staff. I will have to take that on notice.

Senator KIM CARR: So you have 5,800 staff. Would they be all teachers?

Ms Zimmerman : No.

Senator KIM CARR: Roughly what percentage would be teachers?

Ms Zimmerman : I am sorry; I do not have that.

Senator KIM CARR: How many of them are casuals?

Ms Zimmerman : We have both permanent staff and a reasonable number of sessional staff. Those sessional staff are usually adjunct staff of universities, and so we will employ them on a sessional basis.

Senator KIM CARR: But can you give me an indication of what percentage of the number of the people you have in front of classes who are actually casuals?

Ms Zimmerman : I do not have that figure, but, if you would like—

Senator KIM CARR: Can you take that on notice for me?

Ms Zimmerman : Yes, I can.

Senator KIM CARR: What about you, Mr Jacobson?

Mr Jacobson : I would be happy to do the same. A figure in the order of 50 per cent comes to mind. But I do not have the figure at hand. If the implication of the question is that there are casual staff who deliver teaching then—

Senator KIM CARR: Of course there will be. But I am interested in your cost structures; that is all. It has been put to us that the private sector has different cost structures. Take the Vice-Chancellor at the Australian Catholic University; he strenuously argues that paying 70 per cent of the Commonwealth's supported place amount to the private sector is grossly extravagant, and he suggests 40 per cent. He has put that in his evidence to the committee. I would just ask if you could comment on this. He basically says to us that private providers do not have a legal requirement to do research. They do not have a responsibility to maintain high quality through expensive safeguards and protections—because universities are leaders in Brand Australia. He talks about the obligation to teach courses across a full range, including expensive science courses and smaller courses in various languages and the obligation to run what he called:

Brilliant but uneconomic education programs for the disadvantaged …

and costly regional campuses. Which of those would you refute?

Mr Jacobson : All but the first one.

Senator KIM CARR: Why?

Mr Jacobson : Why?

Senator KIM CARR: Yes.

Mr Jacobson : If you refresh my memory as to the subsequent three or four—certainly, we recruit a meaningful volume of international students and, to that end, we see ourselves not only as a custodian of Brand Australia, as you put it, but actually, to the extent that we are engaged as a partner by Australian universities, we see ourselves as, fundamentally, a brand custodian of their brands, and in fact we believe we provide a service that is directed at building their brands in international markets, and we believe that we have done that very effectively now over a number of years. This is principally one of the reasons they seek to engage with us. That is our view on the matter of brand.

Senator KIM CARR: What about offering a full range including expensive science courses and small courses in various languages?

Mr Jacobson : I think that part of the basis on which this reform, as I understand it, is predicated is such that it would give universities greater flexibility to be able to—

Senator KIM CARR: I am specifically asking you why you should be paid 70 per cent of a Commonwealth supported place when it is proposed to the committee that 40 per cent would probably be too much, according to Professor Craven.

Mr Jacobson : Fundamentally, we have different cost structures. We do not have the benefit, as it has been put, and widely talked about, of access to infrastructure—access to premises. We have a different tax status. Then our contention would be that we provide a different range of services that are implemented to respond to an idiosyncratic student need.

Senator KIM CARR: I see. Ms Zimmerman, would you like to comment on that proposition that has been put to the committee?

Ms Zimmerman : Navitas understands that a percentage of Commonwealth supported places funding is available to universities to fund research. We are not a university and, apart from one of our specialisations, we do not conduct research. However, I think the current system for funding research is really not the most transparent, efficient or effective system, but it is the current system.

Determining a fixed discount for non-higher education providers is administratively simple, although it does not take into account the diversity of providers, as Warren was referring to, and the fact that some offer degrees by research. I think that at the sub-bachelor level the rationale for a 30 per cent discount is really less clear, particularly as the delivery model used by non-university higher education providers involves lower student-teacher ratios and more intensive student support.

Given that all higher education providers are accredited by TEQSA and they meet the same threshold standards, the question of eligibility for Commonwealth supported places should be: why should tens of thousands of Australians who choose to study for their higher education qualifications outside the university system pay significantly more for their study?

Senator KIM CARR: What percentage of your after-tax profit was reinvested into the operations of your education facilities?

Ms Zimmerman : It was $65 million last year.

Senator KIM CARR: Is that your after-tax profit?

Ms Zimmerman : It was invested as depreciation, amortisation and retained earnings. I also make the point that less than one per cent of Navitas's Australian tertiary education revenues last year came from taxpayer funds.

Senator KIM CARR: I noticed a report in the Sydney Morning Herald on 28 July. It says:

The chief executive and founder of education group Navitas says it’s highly unlikely there will be any nasty surprises among the 25 other university partners for which the company runs pathways colleges as a bridge to university education, after its dumping by Macquarie University.

Rod Jones, who co-founded Navitas in 1994 and led it through an ASX listing in 2004, says he doesn’t harbour any grudges toward Macquarie University after it made the surprise decision …

I understand that Navitas's profit slumped by 31 per cent, according to the report I have before me. Is that true?

Ms Zimmerman : The share price fell.

Senator KIM CARR: Yes.

Ms Zimmerman : I do not think we would term this a dumping. We have had a long relationship with Macquarie University, for nearly 20 years. There is a new vice-chancellor and he is perfectly entitled to decide on a new direction. We have 32 university partnerships around the world.

Senator KIM CARR: I am just relying on a report. So the report is inaccurate, is it? The 25 is inaccurate?

Ms Zimmerman : About 25—

Senator KIM CARR: Yes, it says here '25 other university partners'.

Ms Zimmerman : I think there are 32 colleges at the moment.

Senator KIM CARR: And you are saying that you do not expect any others will be ending their relationship?

Ms Zimmerman : I do not have a crystal ball. There is a term to our partnerships. Most of them in fact have entered into new agreements. The Macquarie agreement is the second agreement we have had with them. They were both 10-year agreements. We have had a number of partnerships that have been re-engaged for another 10 years. I think there will be more universities globally that we partner with, and I believe over time there may be some partnerships that come to an end.

Senator KIM CARR: And you cannot give us any explanation as to why this one came to an end?

CHAIR: I am sorry, Senator Carr, but Senator Waters might have questions.

Senator KIM CARR: Sure. I need an answer to the question.

Ms Zimmerman : I believe that the university changed direction.

Senator KIM CARR: My final question goes to the issue of resourcing, because both of you have emphasised the importance of strong regulators, and some scepticism was expressed, I think, Mr Jacobson, that might be appropriate given TEQSA's ability. TEQSA's budget has been reduced by 40 per cent. Professor Craven says:

Everyone knows this gravy train will end up pulling into the Ma and Pa Kettle Business Academy, and that non-universities have nothing like the funding requirements of Australia’s national intellectual powerhouses.

Putting those two things together—the growth in what we might call institutions of limited reputation, and the decline in capacity of our regulators—is there not some danger to our overall international standing, should any of these Ma and Pa Kettle operations go bust?

Ms Zimmerman : I believe that if they are accredited by TEQSA they will not be Ma and Pa Kettle—

Senator KIM CARR: There is a whole lot of them accredited through New South Wales that have never been tested.

Ms Zimmerman : I am not aware of those numbers. We have certainly been re-accredited in all of our operations.

Senator KIM CARR: You might want to have a look at that.

Mr Jacobson : There was a cycle of audits prior to the change in the regulator. My understanding is the entry to the new regime was such that TEQSA undertook a risk assessment of providers in an effort to weed out those who did not meet its—

Senator KIM CARR: Automatic transfer from New South Wales. A big swag of them.

CHAIR: Mr Jacobson, have you finished your answer.

Mr Jacobson : Yes, that is fine.

Senator WATERS: On TEQSA, do you think it is appropriate that the government has reduced their funding by 41 per cent?

Mr Jacobson : From my perspective I cannot opine on the efficiency of TEQSA. I have no great sense for how those dollars were spent, but certainly I am very clear on what the end is that needs to be achieved, and it is for those who are probably more important than me to make sure that TEQSA as a regulator is suitably resourced to achieve those ends.

Senator WATERS: Did you have anything to add, Ms Zimmerman?

Ms Zimmerman : I think that TEQSA is an absolutely critical plank in this. To have all of these reforms we must have a strong regulator that can enforce the standards.

Senator WATERS: Do you think they will be able to be a strong regulator with the 41 per cent funding cut?

Ms Zimmerman : I am not sure if it is 41 per cent, so forgive me on that. I have seen it in millions of—

Senator KIM CARR: That would be close to the mark.

Ms Zimmerman : I think I would agree with Mr Jacobson. I am not sure about the efficiency of TEQSA up to date. I am sure that they will be very efficient going forward.

Senator WATERS: I am interested if there is anything in the current package that would force private providers, such as each of your organisations, to pass on savings associated with the increase of government funding to students?

Ms Zimmerman : I think I said earlier that the cost to students in the one example will decline by about 45 per cent in those particular areas. So I think there will be significant savings for students in this. Currently, the students that we both enrol all pay full fees and have a 25 per cent administrative charge on their student loan, and they still choose.

CHAIR: How much would a full fee be at one of your most popular courses?

Ms Zimmerman : In our submission I have put some of the fees and, for example, one is of a student who did a Bachelor of Applied Social Science at our college of applied psychology. Her degree was $43,440, plus the 25 per cent surcharge.

Senator WATERS: What is there to stop the private providers from retaining that $500 million windfall and not passing on those savings to students.

Mr Jacobson : I think market forces. Certainly it was our experience with the impact of uncapping of places that notwithstanding there is a significant cohort of students who have historically chosen non-university providers. That cohort of students had wider access to the public system. Some part of that cohort of students availed themselves of that access. That was a perfect example of the impact of market forces at work.

Senator WATERS: How does that sit with the earlier contentions that younger students were less mobile?

Mr Jacobson : Who made that representation?

Senator WATERS: A previous witness. It might have been in a different context.

Mr Jacobson : You may well now be talking about the issues of the student mobility by location as opposed to the issue of student mobility by subsegment of the sector. I think that comment may well have been made in relation to geographic mobility as opposed to moving between the non-university and the university system.

Senator WATERS: Perhaps I am conflating the two. But your contention is that students will move from one private provider to another and therefore that will keep your fees down?

Mr Jacobson : My contention is that the uncapping of places provided a wealth of evidence that there is student mobility between the non-university and the university sector and then, in fact, between participants within the university sector.

Senator WATERS: What about participants within your sector? Is it not your contention that market forces will keep your fees down because students will vote with their feet? I am just trying to understand your contention.

Mr Jacobson : Absolutely, because they still have the university sector to choose from. To the extent that there is an uneven playing field, because of your suggestion that non-university providers might hike their fees up, students still have the ability, to the extent that the university sector, all things being equal, may well be priced at a mature discount, they still have the opportunity to choose that as an option.

Senator WATERS: It sounds like they are going to be paying more no matter where they go, to my understanding.

Mr Jacobson : No. I would echo the comments of my colleague in that the cost to students, certainly the students that choose the non-university sector, will be less post these reforms.

Senator WATERS: So you are committed to passing on those government savings even though that is not in the legislation?

Mr Jacobson : Yes. I cannot opine on pricing because I do not think there is a provider, public or private, that has set fees for 2016.

Ms Zimmerman : Apart from the University of Western Australia.

Mr Jacobson : The contention is that the cost to students out of their own pockets will decline as a consequence of these reforms.

Senator WATERS: My understanding, and correct me if I am wrong, is that only those providers with more than 500 domestic enrolments will be required to divert that 20 per cent of their fees into the Commonwealth scholarship fund. What proportion of private providers have more than 500 domestic enrolments?

Mr Jacobson : We do.

Ms Zimmerman : We do too.

Senator WATERS: Can you opine on the remainder of the sector just in a generality?

Mr Jacobson : No. I think COPHE, as a representative of the sector, may be next and they may be best placed to comment on that.

Senator WATERS: I might ask them that one. Obviously, if you do not have to pay unless you have got more than 500 students, one would infer that there is an incentive to perhaps split off and have multiple smaller operators. What do you say to that?

Ms Zimmerman : That makes assumptions about the motivations of why private providers, for example, are delivering education. If it were only to make a profit then I certainly know I would not be here and a lot of other people would not be here too. Private providers are just as passionate about Australia having really well-educated young people and mature age learners. I can see no benefit in gouging. We have students knocking on our door because of the results we deliver. If we price our courses outside the market then we will not have students coming to us; they will be able to get quality courses elsewhere. It is very important for us to make sure that what we are providing is a appropriately costed and provides the outcomes, otherwise we do not have a business.

Senator WATERS: Coming back to the profit motive, it clearly is a relevant factor in your decision making—as it should be; you are a for-profit provider—but where is the assurance that there will not be that multiple splitting off of smaller providers with a possible drop in standards?

Mr Jacobson : I think that there is a commensurate cost. I think it should not be underestimated—the cost of maintaining the structural integrity of a registered higher education provider that needs to meet the stringent requirements of TEQSA.

Senator WATERS: Who have just lost almost half their funding.

Mr Jacobson : We all agree and we could not be more vigorous in our support for the fact that we need a strong regulator, because our strong preference is for anyone who might be construed as a dodgy provider to be, frankly, weeded out of the industry. One only needs to attend one of our graduations—and I would be happy to make sure that you are all on the graduation invite list for the next ACPE graduation—to see the contribution and the difference that we can make to the lives of students and the bona fides of the hundreds, and in some cases thousands, of staff that work for us.

Senator WATERS: Just hearkening back to Senator Carr's earlier question about the after-tax profit and, pardon me, he did ask it, but I did not understand your answer, so I will ask it again. The $65 million figure—was that your after-tax profit or was that the amount reinvested in education?

Ms Zimmerman : That is what was paid in amortisation, depreciation—

Senator WATERS: That is the bit that I did not understand. Can you put that in English for me?

Ms Zimmerman : They are funds that remain in the business that are either being used—depreciation, because we bought assets; for example, we refitted film and audio studios—

Senator WATERS: Okay, depreciation—

Ms Zimmerman : Amortisation: amortising the cost of that over a number of years. Then the retained earnings are earnings that stay in the company that can be invested in curriculum renewal, better services for students et cetera.

Senator WATERS: How much of that—

Ms Zimmerman : Last year that was 65.2—

Senator WATERS: What proportion is that of your after-tax profit?

Ms Zimmerman : I do not have that figure.

Senator WATERS: I think that was the salient question.

Ms Zimmerman : I can provide you with that. It is publicly available.

Senator WATERS: Thank you; I will await that with interest.

CHAIR: If the reforms go ahead—market mechanisms of competition, choice and deregulated fees, supporting innovation, specialisation, differentiation—can you actually give us some hands-on examples of what that will look like, how students will benefit and any regional examples, for those of us that have a particular interest in outcomes for regional Australians?

Mr Jacobson : My view would be that, where it is today, non-university providers of higher education provide clear evidence of that, because, in the main, it is non-university higher education providers that operate in those niche areas that have typically been underserved by the public system. If you look at ACPE, whose origins go back to 1917 as a teaching institute for women, or if you look at SAE Institute, one of my esteemed colleagues' institutions, which is a provider of specialist education in the creative media industries, or if you look at some of the other areas, whether it is in creative industries, studio and audio engineering, music, natural health or even financial services—if you look at where the old Securities Institute of Australia, then Finsia, now Kaplan Online Higher Education, provided financial services education—these were all examples of non-university private providers or industry associations endeavouring to meet a need that industry did not believe was being adequately met by the public system. I think an environment that creates a higher level of competition within non-university private providers but also between public providers and non-university private providers can only promote more of that innovation.

Ms Zimmerman : I think the other point to make—and probably Study Group and Navitas demonstrate that—is that most of this we do not do alone. We do it with public providers. It is about a collaboration. I think we will see more of that. We will see, if you like, institutions stick to their knitting. But, in collaboration, the synergies are greater and there is a potential to contribute much more to communities. In a very small way in a different area, but not in the higher education area, for example, we have a small partnership with a regional TAFE where they do the delivery in a program and we provide resources they do not have to assist them to do that. I think there is a lot of opportunity in this legislation.

Mr Jacobson : We equally have a partnership with a regional university where we run a managed campus in both Sydney and Melbourne for that university. We give them a geographic reach which they otherwise would not get. Also on those campuses we have predominantly international students and we would be the single largest contributor of international students to this regional university. We recruit more students for them than they recruit directly. The access to that revenue stream is significant.

CHAIR: Because of the strength of your brand?

Mr Jacobson : Because of our ability to recruit international students, our reach in the market and our reputation, but equally our delivery prowess because we are running this campus on behalf of the university. The results that we achieve for that cohort of students which has idiosyncratic student needs and support needs is something the university feels there is benefit in entrusting to us.

CHAIR: Thank you so much for your evidence before us today.