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PRIVATE vocational education is in crisis.

Some of the causes of that crisis are well-known, such as the Department of Immigration and Citizenship's much-publicised changes to the skilled occupation list. However, other causes are less well-known, such as the build-up of bad debt within the sector.

These debts arose because, as Greg Keith, partner with Melbourne accounting firm Grant Thornton, recently explained to an industry seminar after auditing a large number of colleges in Victoria, many students have found ways of studying without paying providers.

How they can do this is deceptively simple.

After having paid their fees, say, for a term in advance at one provider, they delay paying their subsequent fees for as long as possible after that.

Once the provider loses patience with the student and cancels their enrolment, the student can simply re-enrol with another provider.

Keith observes that there is hardly a single private education provider that has not been affected by those bad debts, and industry sources estimate the debts run to tens of millions of dollars. These debts have already forced some genuine providers to close, and many more will close if the trend continues.

How did such a situation come about? Short-sighted and over-optimistic providers played their part: when enrolments were booming, for instance, it was easy to write off the debts as simply a cost of doing business. It is only in the past 12 months or so that the problem has become acute.

Without the previous rapid growth of new enrolments, the result of the bad debts became obvious. What was once merely an irritant was, and is, threatening to become financially fatal for many providers.

Government indifference, too, played a role in the debt build-up. International students can legally stay in Australia only if they have a confirmation of enrolment from an education provider. A provider can apply to the Immigration Department to cancel the COE if the student, say, is not attending classes or is not making satisfactory academic progress, as the student is not complying with their visa conditions.

Surprisingly, however, a student unwilling to pay fees is not grounds on which an enrolment can be cancelled. Just why it is not made grounds for cancellation is curious: every industry needs sustainable cashflows to survive, after all, and one of the main criteria for granting a student visa is the student proving to the government they have the capacity to pay their fees. (To be fair to government, unwillingness to pay is harder to test.)

Whatever the reason, this absence of a credible threat to ensure fee payment was ruthlessly exploited by some students.

With the changes to the skilled occupation list and the consequent dashing of the hopes of many students to acquire permanent residency, this problem may only get worse in the short term.

Knowing there is no immigration incentive to graduate (one sanction the providers do have for non-paying students is the withholding of academic results), some unscrupulous students will seek to prolong their stay in Australia as long as possible, perhaps to work illegally and repay the debts they and their families incurred in coming to Australia.

If action is not taken quickly, bad debts will become even more virulent in the sector than they are today.

Fortunately, there is a relatively straightforward legislative solution. The federal government simply has to legislate to change the national code (that is, the federal laws governing the provision of education to international students) to make it a condition of transferring enrolments between institutions that the student first clear all debts with the provider with which they were previously enrolled.

As the sector is already facing enormous challenges, this legislative change would be a good start on the long road back to a sustainable international private education sector.

Mike Riddiford is a director of International Private Education Alliance Limited.

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