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Cooperative change for tertiary education

Steve Maharey
12 September 2000 Speech Notes

Cooperative change for tertiary education
Private tertiary education providers in the new environment

Address to the annual conference of the New Zealand Association of Private Education Providers. Plimmer Towers, Wellington.

Introduction

Thank you for the invitation to come and speak to your conference again this year. While I always enjoyed NZAPEP annual conferences as Opposition associate education spokesperson, it is a pleasure to be with you this morning as a Minister in the Labour-Alliance Government.

This morning I would like to start by taking stock of the private training establishment (PTE) sector as it currently stands, using the initial results of the rich data-source that is now available to us through the Ministry of Education's Single Data Return process. I would then like to outline the key features of the new environment for tertiary education in this country that this Government is creating. Then I want to start to outline what that will mean for private providers.

First though, I would like to add my farewells to your outgoing president George Borthwick. George has been a very effective advocate for your sector over the past three years and for the cause of education generally. He has had the rare gift of being able to act as a bridge between all the interests in the PTE sector and has encouraged you to move forward together. I understand George that following the conference you are planning to travel overseas and to rediscover your own roots. Bon voyage.

The State of the PTE Sector

It is interesting that, notwithstanding its significance, there has been little comprehensive research on the PTE sector. The introduction of the Single Data Return (SDR) by the Ministry of Education this year has created the opportunity to access improved information about a significant segment of the PTE sector for the first time.

The sector encompasses a diverse range of providers in respect of their ownership, size, reliance upon government funding, and role and purpose. The key features of the sector are its diversity and complexity.

There were 828 PTEs registered with NZQA as at 31 July 2000.

A total of 421 PTEs were receiving some form of government funding as at 20 April 2000, and were therefore captured in the SDR snapshot. Of these, 187 received EFTS-based funding.

While the number of PTEs is large, in general they tend to be small in terms of the number of students they train, and the number of qualifications they offer. At as 30 April 2000, 48 per cent of the PTEs captured in the snapshot had 30 or fewer formal students. The number of qualifications offered at individual PTEs as at 30 April 2000 ranged from 1 to 35.

However the size of individual PTEs is diverse and there are a number of large PTEs. As at 30 April 2000 the greatest number of formal students per private provider was around 1,000, and the greatest number of qualifications offered was 35.

The PTE sector is continually evolving – between January and July this year, NZQA de-registered 47 PTEs and received 47 new applications for registration, and the Ministry of Education approved 55 new PTEs for EFTS-based funding and loans and allowances, and removed this access from 5 private providers.

Subject areas and programmes of study

While individual polytechnics and universities are required under the Education Act 1989 to have a wide diversity of education or teaching and research, these provisions do not apply to PTEs. Individual PTEs tend to have a narrow focus, specialising in one subject field, and few offer more than three subject fields.

The subject areas offered across the PTE sector however are diverse, and include areas such as art and design, te reo and tikanga Maori, travel and tourism, early childhood education, aviation, hairdressing, trades, religious studies, computing and information technology, business, agriculture, alternative medicines, and sport and leisure.

The range of programmes is diverse, from second chance programmes such as Youth Training and Training Opportunities, through to Skill Enhancement and Industry Training, and to degree and post-graduate qualifications.

The programmes offered are mostly at the lower levels on the National Qualifications Framework (eg levels 1 and 2) which are funded through Skill New Zealand. EFTS-funded programmes are generally offered at certificate or diploma level, and only six PTEs offered degree level courses in 1999.

Numbers and characteristics of students and trainees

PTEs attract a large number of people who have low secondary school qualifications, have previously been unemployed or beneficiaries, and are Maori or Pacific peoples. Clearly this highlights the importance of this sector to social and economic policy directions including Closing the Gaps.

There were 29,766 formal students attending PTEs as at 30 April 2000. This is around 8% of all students participating in tertiary education. Of this number, 14,396 (48%) were EFTS funded.

However some caution is needed with snapshot data on the stock of trainees at any given point in time. For example, the number of PTE students identified as being funded through Training Opportunities and Youth Training programmes as at 30 April 2000 were 6,808 and 4,894 respectively. The total number of participants over the course of the year will be a lot higher than these figures however, as several programmes are run throughout the year and many students participate only once. In 1999, there were 19,717 Training Opportunities trainees and 12,002 Youth Training trainees in PTEs.

Organisational Form of PTEs

PTEs have a range of organisational forms including limited liability companies, trusts and incorporated societies. They are all required to be legal entities for registration. It is difficult to establish how many PTEs are 'for profit' organisations.

According to a National Research Bureau survey in 1995, 46% of PTEs were limited liability companies, and 37% of PTEs were trusts. A further 17% had other forms, which included Maori organisations and incorporated societies. Although this does not tell us about the proportion that were for profit and not for profit, it is estimated that a significant proportion are not for profit organisations.

The PTE in the Market System

This belies the stereotype of PTE as rapacious profit-chasers that some have perpetuated. Equally mythical is the assumption that PTEs have always benefited from the past decade of rampant competition that the previous National government brought about. Many PTEs have done well, but it has often been in spite of a policy environment in which their role has been left largely undefined and in which their policy framework has been subject to often capricious changes from year to year. I doubt there will be anybody here from a second-chance education provider who will be trumpeting the wonders of the competitive system! And while the increase in the EFTS funding available to PTEs has been welcomed by many within the sector, next year will be perhaps the first year in a decade that those PTEs will have had stability in their funding environment from one year to the next. This in itself has been a huge relief for many.

The New Environment

It was in the context of this widespread disillusionment with the market model of education that the Labour/Alliance Government was elected. We have moved quickly to implement our pre-election tertiary education commitments. This is a very manifesto-driven Government – what you saw pre-election is what we are delivering. In many ways I think this has assisted us, and the sector generally, to move down an alternative, but clearly signposted, pathway because the change we are promoting has been well signalled and the sector has had time to digest what it means for each of you.

Our vision for tertiary education is very much rooted in the realities of the knowledge society as we know it in New Zealand at the start of this new century.

Towards the Boutique Economy

My belief is that the new economy is fundamentally about the application of new technologies, new information, and new competencies to what it is that we know and do well, and have being doing well for some time.

Our success as a knowledge economy will be determined by our ability to move along the spectrum from 'low-technology' to 'high-technology' in our existing areas of advantage. That means, fundamentally: our location, the activities that can be carried out upon it, and the things that it can grow.

We will need to leverage, in a wide variety of ways, off our unique location and low population density. We will need to do this in ways that incorporate the advantages offered by the most up-to-date technology. We will need to seize every opportunity to apply domestic skill and innovation to add value and develop niche-oriented products. We must then capitalise on that by selling the expertise and technology developed to the world.

Viticulture, organic products such as fish, livestock and forestry and tourism are excellent examples of highly-skilled New Zealanders extracting maximum value from the advantages of our natural environment.

Andrew West from the Institute of Geological and Nuclear Sciences calls this the 'gourmet economy'. I prefer the term 'boutique economy', because it emphasises that we are not just talking about food products. The example I like to use to get people thinking more broadly is the film industry. New Zealand's recent popularity as a film location is also based on our low population density and the beauty and variety of our environment. Nonetheless, to fully capitalise on this, we need to take the route that Peter Jackson has taken with Lord of the Rings and use every opportunity to incorporate Kiwi vision, Kiwi skills and Kiwi technology into the mix.

I share Andrew West's enthusiasm for particular investment and attention to the wide range of skills training, tertiary education and research which will support and develop these products. My view is that this is where New Zealand can give a distinct personality to the knowledge society in our country – and where our future economic success lies.

Nation-Building – The Role of the Tertiary Education Sector

If this is to become a successful strategy, there will be need to be strong linkages between our economic opportunities and the tertiary sector. In reshaping the sector the Government is focusing on three key variables:
 Strategic focus;
 Quality; and
 Affordability.

I'll come to quality issues as they relate specifically to your sector later.

You will be familiar with the range of affordability initiatives the Government has taken since we came to office. All up we are investing $664 million over four years to lower the costs of tertiary education and to give students more certainty about the costs they will face over the duration of their course of study.

Strategic focus in the tertiary sector is desperately needed. The Government has inherited a run-down, uncoordinated and poorly-focused tertiary sector.

We need to move beyond a situation in which tertiary providers – both private and public – simply engage in fragmented, low-level competition. We cannot afford the win/lose dynamic that that produces.

We cannot have tertiary providers who fail because we cannot afford to have students who are failed by them. We need to make success and the delivery of excellent education at every level a constant across the board -- the only constant in a diverse array of tertiary education provision.

In order to restore strategic focus to the sector I established earlier this year Tertiary Education Advisory Commission to give the Government advice on how to develop a coherent tertiary education system that will serve New Zealand's needs as a knowledge society. The Commission is expertise-based and comprises eight skilled New Zealanders who have mana in the tertiary education community.

The Commission has been working hard and produced its initial report in July, Shaping a Shared Vision. Next year it has committed itself to three reports. The first will look at cooperation and collaboration, and the best ways to encourage this within the sector. The second 2001 report will look at how we can best ensure that tertiary education provision is aligned with the needs of society and the economy, both nationally and regionally, offering relevant and high-quality learning opportunities.

The third report for 2001 will be perhaps the most far-reaching and will represent the culmination of the first cycle of the Commission’s work. It will focus on the EFTS funding system and the other existing mechanisms for funding learning and research in tertiary education. And it will propose reforms to advance the Government’s aim for tertiary education, for implementation in the 2002 Budget.

In addition, the Commission has also agreed to work closely with the Ministry of Education to help develop a package of proposals for next year’s Budget that will prefigure those more extensive changes.

The work of the Tertiary Education Advisory Commission is very relevant to the PTE sector. The Commission has helped to widen people's framework for looking at tertiary eduction. For many people tertiary education means what goes on in polytechnics, wananga, universities and colleges of education. If we’re being particularly expansive, we might include industry training and the teaching that goes on in private providers at equivalent levels of the Qualifications Framework.

However, I have always been very clear that I consider the post-school learning that occurs at levels 1 and 2 of the Framework to be utterly vital if we are to have a knowledge society for everybody, rather than just reinforcing inequalities of opportunity. This is also the area of the framework in which the vast majority of PTEs are focused.

The work of the Commission, as it progresses, will form the basis for a single comprehensive framework for all tertiary education. This will not mean that all learning will be funded through the same mechanism, nor that the same regulatory framework will apply to all provision. However all the various funding and regulatory framework will be related to one another in a rational fashion, rather than the ad hoc mishmash that currently exists. All providers, operating in all modes of education and at all levels of the Qualifications Framework, will have a clearly defined role within an overall nation tertiary education system.

Complementarity -- The PTE Sector in the New Environment

I want to stress, as I have always stressed, that the Government continues to see a role for private providers.

That role is in delivering education of the highest quality in important niche areas and using innovative teaching methods -- education that has a distinct contribution to make within a nationwide system of tertiary education.

It is also worth pointing out that the Government does not accept unchallenged the views of those in the sector who are critical of the role private providers play.

It is worth noting that the relationship between the PTE sector and the public tertiary education sector is complex. Preliminary analysis undertaken for me by the Ministry of Education reveals that, while there are instances of direct competition between PTEs and public institutions, there are also examples where PTEs are filling niches which public institutions do not teach in.

Indeed in some locations public institutions are now teaching programmes in subjects previously the sole domain of private providers. Examples here include beauty therapy and alternative medicine.

EFTS-Funded PTEs

This Government has clearly signalled that it sees no future for wholesale competitive behaviour in the tertiary education system. This will impact on a number of tertiary education institutions. It will also impact upon a number of private training establishments.

I have been clear than I do not see unfettered proliferation of private providers in the EFTS system as compatible with a strategic approach to tertiary provision. Equally, however, those providers with strong track records and those with valuable contributions to make can expect their roles to be very clearly recognised and their status to be more secure than ever before.

Upon taking office, this Government proceeded with moves to equate PTE funding rates with those in the public sector. This has resulted in an estimated 323% increase in funding for EFTS-funded private training establishments in 2000. We make no apology for that. If we are going to funding students to study, then we are not going to fund them at second-class rates. Every student is entitled to an education of the highest quality. Nor should we forget the important role many PTEs play in 'Closing the Gaps' for Maori and Pacific peoples.

There will be no change to the EFTS system for private providers in 2001. Private providers, as well as public institutions, have been offered a 2.3% per EFTS funding increase in return for fee stabilisation. I have been pleased at the warm reception that this initiative has received from the private sector, and high level of acceptance of the offer.

Second chance providers

Skill New Zealand has purchased training from 396 PTEs for Training Opportunities, Youth Training, and Skill Enhancement in 2000. In the 1999/2000 financial year, this amounts to around $129.66 million of training ($50.25 million for Youth Training, $74.00 million for Training Opportunities, $5.41 million for Skill Enhancement).

I am aware of the concerns of the sector over aspects of the funding of and contracting for second chance education.

In January this year the NZ Association of Private Education Providers provided me with a detailed submission that described the PTE sector, provided a context for the policy issues that the sector faces, and advanced a number of specific recommendations.

More recently the Association has provided a submission that addresses a number of issues around second chance education and the Training Opportunities and Youth Training programmes in particular.

I imagine that the senior officials who are addressing the Conference today and who will field questions will address a number of the issues that you raised in your submission to the incoming Government.

Let me make a number of comments:

Firstly, let me reaffirm that Government wants to engage with the sector as a partner in building our national capacity and capability in the area of post-compulsory education and training. Personally I value the relationship that I have with the sector. Let me also add as an aside that I very much wish that all of the organisations and interests with which I engage were as professional in their approach as yours. When I go into a meeting with the Association I know what exactly you want to see addressed, and when I come out of a meeting I always have a sense that the engagement has been both pleasant, and effective.

Secondly, let me emphasise that the relationship with the sector will not simply be one as between the parties to a contract. In a very real sense our relationship is about a high level contract – government contracts with you for education and training (and labour market outcomes). And in a very immediate sense, for those of you involved in programmes like Training Opportunities and Youth Training, have a contract with Skill New Zealand.

But I want the relationship between government and the sector, and between government agencies and the sector to be much more than what is captured in terms of a contract. The essence of what I am looking for is partnership. Partnership doesn't mean that we will agree on every matter on every occasion. Partnership doesn’t mean central government abrogating its responsibility.

But it does mean engaging with you so that you are party to the development of vision, strategy, and policy – one of the reasons why I was insistent that there be representation from your sector on the TEAC – and it does mean ensuring that government agencies engage with you outside of the contracting relationship.

It does mean that you have the right and the responsibility to raise with those agencies if you have concerns say about the variability of the service you are receiving, or about the interpretation or application of contracting guidelines.

It does mean that those agencies have a responsibility to engage with you on funding and quality issues.

The Government also has a number of other policy developments underway which impact on the PTE sector. These policy developments include:

 Closing the Gaps for Maori and Pacific peoples. The Government has directed officials to work on building the capacity in Maori and Pacific PTES. It has also directed officials from different organisations to work more closely in building this capacity and capability, and to report on progress at the end of each financial year. This has sent an important signal to both the PTE sector and Maori and Pacific communities about the role of the PTE sector in tertiary education provision.
 Adult literacy. The Government has indicated a growing concern with the level of adult literacy in New Zealand, especially given the International Adult Literacy Survey report that nearly 50% of adult New Zealanders are below the level of competence required for everyday life and work. Most current literacy providers are PTEs.
 Industry training. ITOs purchase education and training services from significant number of PTEs. While this varies from industry to industry, in some cases PTEs are the only providers contracted.
 Modern Apprenticeships. The PTE sector is active in supporting the Modern Apprenticeships scheme. Four of the 12 Modern Apprenticeship Co-ordinators selected to run pilot programmes are PTEs.
 Regional Development. The Government has stated that part of its vision for the tertiary education sector is to have a sector that fully supports regional and local communities. The geographical distribution of PTEs and their links to other Maori and community organisations could be used to assist in delivering tertiary education to regional areas, possibly in partnership with local public providers.

I am expecting further reports on the PTE sector towards the end of the year. I have instructed Officials from the Ministry of Education to work closely with the Tertiary Education Advisory Commission on further work. Both the Ministry and the TEAC will continue to work very closely with the sector, and specifically through the peak organisations that represent your views to government.

Fee Indemnification – an end to 'buyer beware'

I want to finish today by announcing an important initiative that I believe will be beneficial to the reputation of the PTE sector.

In order to gain access to EFTS-based funding or student loans and allowances, PTEs must first gain registration from NZQA and approval and accreditation for the qualifications to be offered, and then satisfy the Ministry of Education's financial viability criteria. The financial viability criteria require a PTE to submit audited financial statements, externally attested financial forecasts, and a business plan. Financial viability must be re-established annually.

The number of PTEs, which have failed, is small, although a few have featured prominently in the media. These include the New Zealand Film and Television School Ltd and Te Tumu Wananga. Only three PTEs receiving EFTS-based funding and/or student loans and allowances have failed in the last two years.

The major concern regarding the failure of a PTE is the protection of students' and taxpayers' investment, both financial and educational. Recent examples of financial failure of NZQA deregistration of PTEs have shown that students are vulnerable in cases where closure happens part way through a course.

Students may have nothing to show for their course fees already paid, and no prospect of any fee refund from the failed provider. In cases of insolvency (or indeed of uncooperative providers who are being deregistered) the academic records of students may become virtually inaccessible, as the many competing claims of students and other creditors have to be worked through by the receivers or the Authority.

The previous National Government did nothing about this. Scandalously, their position upon the collapse of Creative Learning Environments Ltd in 1998 was that students had to recognise that if they enrolled at a private training establishment they were in a 'buyer beware' situation. This stance was subsequently used to tar the whole PTE sector.

Under the Labour/Alliance Government, both the Ministry of Education and the NZQA have been further developing their monitoring systems for providers to include more frequent audit visits and greater scrutiny of provider performance.

The financial viability process will ensure that providers who have not returned sufficient information and attestations to be judged financially viable do not continue to access EFTS-based funding and/or no new intakes of students will be able to access student loans and allowances.

Moreover today I am announcing that the New Zealand Qualifications Authority is to extend its registration criteria for PTEs to include proof of adequate protection of student fees in the event of closure.

The NZQA Board's preferred model is insurance to protect students' fees in the event of insolvency and/or regulatory closure or withdrawal of accreditation. There will be a fee indemnification requirement put in place for the 2001 academic year. The Ministry of Education 2001 tertiary funding handbook will be aligned to reflect this new requirement.

The Approvals and Accreditation sub-committee of the NZQA Board will consider the detailed parameters of the indemnification requirement later this month and the detailed requirements and parameters will be communicated to providers by letter immediately following the September meeting of the NZQA Board.

It is important to note that the majority of fee-taking PTEs have some sort of fee protection arrangements in place. The remainder of the PTE sector effectively now has five months to negotiate cover with insurance companies, or enter into mutual support arrangements with other PTEs.

Conclusion

Further work analysing the relationship between PTEs and New Zealand's public tertiary education system is being undertaken for me by the Ministry of Education. As I indicated ealier the Commission will also be considering these issues as part of the work it is doing.

I encourage you as a sector to continue to engage with the Ministry and with TEAC. I want to assure you – just as I have sought to assure the universities, polytechnics, colleges of education and wananga – that any changes which affect you will be well signalled and we will seek to work with you in partnership to reshape the system.

Finally, can I thank you for your commitment to raising skill levels in our society. It is often said that our collective future as a nation will be built on what is between our collective ears. It deserves repeating again today because it is true.

I look forward to continuing the excellent relationship that I have with NZAPEP in the coming year. Enjoy the rest of your conference.

ENDS

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