Andrew Norton

Prac payments

It’s Great The Prac Payment Will Go To Students. It Will Also End Up At The ATO

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Last year I was critical of how I thought the Commonwealth Prac Payments were going to work. These were to provide Austudy level payments, currently equivalent to $331.65 a week, for nursing, midwifery, social work and teacher education students while undertaking compulsory work placements. The payment starts on 1 July 2025 for students on income support and some working students.

Rather late in the day, the legal paperwork for its higher education version was completed last week. The vocational education diploma of nursing version paperwork was already available. The higher education version is administered by universities and funded through the ‘other grants’ provisions of the Higher Education Support Act 2003. The VET Prac Payment is administered by the Department of Employment and Workplace Relations, although thefunding is authorised under the Social Security Act 1991.

Things I was concerned about that have not happened

Some of my Prac Payment concerns from last year were not realised in the policy as enacted. The Prac Payment has a means test but it is based solely on the student’s income, not family income. However family income has an indirect effect through eligibility for income support. 

A policy goal is reduce the number of students who defer or withdraw from their course due to placement obligations, but students won’t need to prove that they are considering either of those things.

But in the Australian way of public policy, the Prac Payment is an underwhelming half-measure. The payment is low and will be further reduced by tax and by social security income tests. Many students won’t be eligible at all. 

Who is eligible for the Prac Payment?

Aside from undertaking one of the compulsory placements, to be eligible students need to be a) on an eligible Commonwealth income support benefit or b) working with hours and income parameters defined by the guidelines. If working, a two-part test applies:

  1. In either a) the 4 study weeks immediately prior to the mandatory placement starting or b) in the 4 study weeks immediately prior to applying for the Prac Payment (whichever is earlier) the student worked on average more than 15 hours a week (i.e. more than 60 hours over 4 weeks) AND
  2. Earned from all sources less than $1500 a week on average (i.e. less than $6000 over 4 weeks).

Students on income support

All the eligible Commonwealth benefits – the plain-language list of which benefits are covered is in the vocational payment guidelines – are means tested. The ever-vigilant Services Australia is already warning students that they must declare Prac Payment income, which can reduce their income support payment. The government gives with one hand and takes with the other.

For students on Austudy the income test is fortnightly. Students can earn up to $528 a fortnight without affecting their Austudy payment. As the Prac Payment will pay $663.30 fortnightly it means the student’s Austudy payment will be reduced.

For a single student with no children the Prac Payment would reduce their Austudy by $52.50 plus 60c cents per dollar over $633, so another $18.18 for a total of $70.68. The net value of the Prac Payment after the income test is $260.97.

Some students could use their income bank (credit for other fortnights in which they have earned less than $528) to reduce this impact. But if students earn other income from part-time work during their placement the income test would take more of their Prac Payment.

A better Prac Payment policy for students on income support might be to pay them exactly the income test amount – $528 a fortnight or $264 a week. The student would be $3 a week better off and the Department of Education would save $67.65 a week on each student.

For students on other income support payments the income test is less generous. For example, a student with one child on a Parenting Payment can earn $220.60 a fortnightbefore their payment starts decreasing by 40 cents in the dollar. Partial loss of the student’s parenting payment would make the Prac Payment worth $243.11 a week.

Policy purpose – income support

The policy purpose for income support recipients seems slightly different from students facing the work test. Income support recipients won’t lose any benefits income by doing their placement. But they are likely to incur additional expenses, such as travel to the placement location. This can include accommodation if the placement is too far from the student’s home. 

As described in the next section, for many working students the Prac Payment won’t cover their income loss, let alone additional placement costs. 

Students without income support – eligibility

The two-part test for working students without income support means that it only applies in a range of incomes. From 1 July 2025, when the new minimum wage of $24.95 an hour applies, 15.5 hours work (so more than 15 hours) = $386.72. So the Prac Payment is for students earning between $386.72 and $1499.99 a week. As the weekly Prac Payment is $331.65 students must lose at least $55 if they can’t work their normal hours at all. 

Using the ABS Education and Work TableBuilder product I can analyse the relevant fields of education, although this includes some courses that won’t get the Prac Payment. The working hours options offered by TableBuilder don’t exactly match the payment criteria, but based on Education and Work 2024 approximately 30% of students would be ineligible due to working too few hours, and another approximately 30% would be ineligible due to working too many hours (based on a minimum wage * hours calculation). Some no or short work hours students would, however, be eligible based on receiving an income support payment.

There is no taper in the Prac Payment. A person averaging $1499 a week gets the full $331.65 Prac Payment, a person averaging $1501 gets nothing; a person working 15.5 hours gets the full amount, a person working 14.5 hours gets nothing. We can expect gaming of the system to expand eligibility.

But with administration of the program outsourced to universities, discussed below, a tapered payment would have been unreasonably complex for organisations with no experience of running income support programs.

Policy purpose – income test

Other than to reduce the government’s costs, I’m not clear on the rationale for the $1500 a week cut-off for Prac Payment eligibility. If the student is their household’s main or a major income earner the financial consequences of taking time off for the placement are more serious than for students whose paid work finances discretionary expenses. The more than 15 hours minimum work makes more sense than the $1500 income maximum. 

Admittedly $331.65 is not much compensation if the placement requires forgoing the full $1500+ a week; making the placement work is still going to require savings and sacrifices. But arguably a higher income signals greater rather than lesser needs.

The ATO takes its share

As well as counting towards social security income tests the Prac Payment is taxable. Somone on Austudy for 52 weeks would receive $17,245, just below the first income tax threshold of $18,200. Each course has its own maximum number of weeks on placement. It is 20 hours for nursing, so a maximum Prac Payment of $5219 (at the $260.97 effective rate, the money will be taken out of their Austudy), and total income support of $22,465. Of this, $4265 is taxable at 16 cents in the dollar = $682. 

Someone at the upper limit of the income range would be in the 30 cents in the dollar tax bracket.

As the Prac Payment is taxable this reduces the effective cost of extending it to people earning over $1500 a week. 

Deductible placement expenses?

While the ATO gets a cut of the Prac Payment money, as students are earning money for the placement can they claim placement expenses as tax deductions? I think probably not due to the interaction of section 26-19 of the Income Tax Assessment Act 1997 and section 160AAA of the Income Tax Assessment Act 1936, which refers to a ‘Commonwealth education or training payment’ (sub-section 1(b)). But sub-section 1 (b) cross-references a sub-section 6(1) for more detail, but that section does not seem to exist. 

In 2024 I thought that Centrelink rather than universities should administer the Prac Payment. Universities aren’t set up to run means tests. If all the casual underpayment issues are a guide, they aren’t very good at ad hoc payments either. 

During the Senate inquiry into the bill authorising higher education Prac Payment spending, however, students made a reasonably persuasive case that dealing with Centrelink was not easy, and that students not on income support currently have no interaction with the social security system. The universities would also still need to be involved, to authenticate that the placement was happening.

But arrangements for vocational education diploma of nursing students suggest a third option, that the relevant policy Department arrange the payments – the Department of Education for higher education students. If DEWR can do it so can the DofE, or better still they could share it. It would be more efficient than every university setting up its own means testing system, for which the Department has already paid them $2.3 million. 

The relevant students could be flagged in TCSI, and records of the payments sent to Services Australia and the ATO for maximum efficiency and cost recovery. 

Will it make a major difference?

The Prac Payment is a good idea, but with overly complex implementation that also reduces its value to students. Many students in Prac Payment courses will find that they are not eligible at all or, due to income tests and income tax, will get less than the already modest $331.65 a week. Some money is better than none at all, but these deficiencies raise questions about whether the Prac Payment will make a major difference to completion rates.

Andrew Norton is professor of higher education policy in the Monash Business School at Monash University, based at the Caulfield campus. Until December 2024 I was professor in the practice of higher education policy at POLIS: The Centre for Social Policy Research (formerly the Centre for Social Research and Methods) at the Australian National University.  He has worked in higher education policy since 1997, when I started as an adviser to the then minister, Dr David Kemp. You can read his blog here.

A reasonably honest portrait of where the system is now

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On Wednesday, the Minister for Education Jason Clare, spoke at the National Press Club on the interim report from the Universities Accord Panel, chaired by Professor Mary O’Kane, who have been given the job of transforming Australia’s university sector.

The report itself has ambitious long- term goals including parity of participation in higher education between the general population and low SES and regional students with disability. This is a very big ask. The minister himself, in his National Press Club speech, noted that in schools these groups are actually going backward rather than forward. The minister also announced a number of other items, including extension of demand-driven funding to all Indigenous students rather than just students from the regions, as it is now.  

If the interim report’s recommendation is accepted there will be some kind of universal learning entitlement for all students, which essentially means that if they’re academically eligible, the system somehow will find a place for them. It implies that universities and other higher education providers might be obliged to take students rather than just having the choice to take them. This makes it different from the previous demand-driven system, which removed funding caps for bachelor degree students, but did not guarantee a place to all who were eligible. 

There are a number of proposals around research and associated issues. The most contentious one will be the idea of a levy on international student fees. 

How this would work is not entirely clear –  the basic idea seems to be that universities will pay a percentage of their international student fee income into a general fund and that money would be redistributed around research infrastructure and other activities around the university sector. 

A number of universities would be very strongly opposed to that. International students will also be unhappy that the money they’re paying will not be spent in their institutions. 

The minister also revealed some proposed and actual major changes to governance. At the national level the interim report recommends a new body, a Tertiary Education Commission, would advise on costs and writing agreements between the government and universities. 

At the university level an interim report recommendation, which the federal government has already accepted but still needs approval from states and territories, will require senates and councils, their governing bodies, to have different compositions. This would reduce the number of business people and increase the number of people with expertise in higher education. I’ve seen firsthand that sometimes the council members don’t have a deep understanding of higher education as an industry so I  support that recommendation.

The goals here are to deal with some of the staffing problems universities have had, particularly in precarious employment and underpayment of casual staff; and also to deal with issues around students particularly around sexual assault. I believe the Accord panel wants university governing bodies to be more aware of and more responsible for trying to improve the performance of universities on these matters.

But it is important that councils and senates are also not stacked by internal constituencies. There was a problem all those decades ago that governments were rightly trying to address in governance reforms. But having people with real higher education expertise will help, hopefully a number of them from outside the institution whose council or senate they are on.

What’s missing from this report? 

What’s missing is mostly the detail of how we would get from where we are now to where they want us to be. They don’t say a lot on a new system of student contributions, which is one of the most controversial areas they have to deal with. They’ve said that the Job-Ready Graduates package (JRGP) is damaging Australian higher education and has to go, but they have only set out a list of potential alternative student contribution systems. 

The report makes a few asides which hint at their views, which means the panel probably won’t recommend just quickly reversing the charges for art students. Nor do they want a flat student contribution rate, as suggested by some university interest groups. But that still leaves a fairly wide variety of possible alternatives. And so I think we will have to wait until the final report at the end of this year to have an idea of where they’re going on that. 

The main defect of JRGP is that it puts a lot of debt on graduates who have a limited capacity to repay in any reasonable amount of time, particularly the arts graduates who historically don’t earn as much as other graduates. They are being hit with the highest student contribution rate, about $15,000 a year at the moment. My view is that many of them will take decades to repay if they ever do. And while the HELP loan system is designed to allow you to spread repayments over long periods of time, that should be people who are sick or for various reasons don’t work full-time, not for ordinary graduates getting a fairly typical outcome for someone with their degrees. 

The report doesn’t directly mention my proposal for replacing student contributions, which is to link student contributions levels to projected HELP debt repayment times. The goal is that the typical student from different degrees would spent roughly the same number of years repaying their debate, on average. But the minister did mention it in the National Press Club. So that gives me hope. 

Another big political issue, which my student contribution proposal is intended to partly remedy, is the burden of HELP debt. The report mentions ideas which it seems the ATO is already working on, such as taking into account the money students have already repaid that financial year, via the PAYG system, before indexation occurs. 

The Accord review panel are also considering moving the repayment system to what they call a marginal repayment system. This means people with HELP debt would pay a percentage of their income above the threshold, not on their entire income as now. 

The panel does address some long running problems in the system, including not covering the full cost of competitive research grants. I’m not sure that they have new solutions for that, a lot of these issues have been known for a long time. Governments for various reasons have decided it’s too expensive to fix them. 

One potentially complex issue is that the Panel suggests winding back some of the research requirements that were introduced by the Peter Coaldrake review of the regulations for being a university.  That will make it easier for some universities to retain their university status. But there’s always anxiety that universities might be reduced to so-called teaching-only universities, particularly if they are regional institutions. That group will be trying hard to make sure that they get good mission-based funding, which respects the role that their research plays in their local areas. 

I think the report paints a reasonably honest portrait of where the system is. It highlights the problems around staffing. But these exist for reasons which are deep in the funding system. There is no easy way out of the basic structural problems – universities can have better payroll systems that stop the underpayment of casuals but that won’t remove the underlying reasons why they have so many casual staff in the first place. 

The panel and the minister are encouraging critique and alternative ideas. Whether or not we agree with all the ideas presented, that is a good approach to public policy. 

Andrew Norton is Professor in the Practice of Higher Education Policy at the Centre for Social Research and Methods at the Australian National University.  He blogs at andrewnorton.net .au  Follow him on Twitter @andrewjnorton 

Header image of the Minister for Education Jason Clare speaking at the National Press Club from the minister’s Facebook page

Universities Accord: Why this urgent deadline is mission (almost) impossible

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Last November education minister Jason Clare released details of Labor’s election promise ‘Universities Accord’ review of higher education. Its terms of reference are wide-ranging. Skills, equity, quality, funding, engagement, research, commercialisation, workforce, regulation, governance and connections to vocational education are all in the brief.

An ambitious schedule

A consultation paper released last month poses 49 questions for stakeholder feedback. Joining considered answers to these questions into a coherent set of recommendations on the Accord review’s timeline is a near-impossible task. An interim report is due in June 2023 and a final report in December 2023.

The most practical way forward for the seven-person Accord panel chaired by former vice-chancellor Mary O’Kane is to recommend policy responses to pressing problems and policy processes for resolving longer-term matters. Australia’s higher education system has faults, but most of them do not need admitting to the policy hospital via its emergency department.  

Student contribution reform should be a priority

My first submission to the Accord panel, made in late 2022, focused on matters I see as relatively urgent. These include the student contribution system established by the Morrison government’s Job-ready Graduates policy, which more than doubled student contributions for most Arts students, slashed them for nursing and teaching students, and moved most other student charges up or down. The idea was to encourage students to take ‘job ready’ or other ‘national priority’ courses.

The Morrison government agreed in 2020 to a Job-ready Graduates review to commence in 2022. The Albanese government slowed this review down by incorporating it into the Accord process. The student contribution reform timeline now looks like a final Accord report December 2023, legislation 2024, and implementation 2025. 

But every year Job-ready Graduates continues, with the top student contribution now above $15,000 a year, students charged this amount sink further into a debt that will take them many years, and potentially decades, to pay off. CPI-linked indexation of their accumulated HELP debt, likely to be around 7 per cent when applied on 1 June this year, will compound their financial misery.

A June 2023 interim report focused on student contributions would leave time for legislation later in 2023 and new student contributions in 2024. Job-ready Graduates itself worked on similar timelines.

My proposal links student contribution levels to other practical policy issues including HELP debt repayment times. One goal is to align average repayment times between courses, so that the years of work required to clear a debt become more similar. Underlying dollar amounts of debt could still vary. Doctors for example earn more than nurses, so with HELP repayments based on a percentage of income doctors repay more each year and can incur larger debts without causing longer repayment periods than nurses.

Student contribution rates cannot be set entirely in isolation from other policies that might be decided later in the Accord process, such as total university resources for teaching or the overall share of public and private finance. The price relativities between courses could, however, be set this year, with later smaller adjustments to support other policy decisions. Every study of graduate earnings shows arts graduate incomes at the lower end of the range, so arts student contributions would return to the cheapest level. 

The problems of a stakeholder-government ‘partnership’

 For longer-run policies, the Accord panel’s consultation paper suggests a ‘continuous dynamic partnership’ involving the government and sector stakeholders. A formal consultative body to promote regular discussion of higher education trends and performance is worth considering. But giving it a formal role in setting policies and priorities via an Accord ‘partnership’ would be a mistake.

The higher education institutions to negotiate a sector-level Accord partnership do not exist. The sector has many conflicting interests and opinions, within nothing like elections and parliament on the government side to reach decisions seen as legitimately made despite disagreement.

An Accord with real influence over policy direction would accentuate power imbalances. University management and staff are well-organised to promote their views in stakeholder discussion, but student and other groups are less effective. Student income support and HELP debt get little attention from non-student stakeholders. Policies on these topics affect household and public, but not university, finances. The interests of taxpayers are not considered by sector stakeholders, beyond general claims about higher education’s public benefits.

 A government-sector ’partnership’ approach also risks bypassing Parliament on issues that it should engage with, replacing legislated policies with agreements between the minister and universities.

The government should consult, but ultimately it must set priorities and make trade-offs between competing goals. The government and any new consultative body should diligently monitor higher education trends, but direction-setting should not be a ‘continuous’ or ‘dynamic’ process. Well-designed policies let higher education institutions adapt to changing circumstances within a stable set of rules. Such rules are a better basis for successful long-term strategies than deals that change with the mood and the minister.  

Andrew Norton is Professor in the Practice of Higher Education Policy at the Centre for Social Research and Methods at the Australian National University.  He is a member of the Australian Universities Accord Ministerial Reference GroupHe blogs at andrewnorton.net .au  Follow him on Twitter @andrewjnorton 

Header image of the February 21 meeting of the Ministerial Reference Group is from Jason Clare’s Facebook page

Image by Adobe Stock

University research funding and international student numbers rose, and will likely fall, together

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Australia’s universities face  multi-billion dollar annual budget shortfalls over the next few years. Fewer international student arrivals are the single biggest cause of falling revenues. In 2018 26 per cent of university revenue came from international students, up from just 3 per cent in 1990.

Universities were warned about relying financially on international students. Since 2017, for example, the NSW Auditor-General has regularly commented  that NSW universities are highly exposed to international students, especially from China. The Auditor-General’s concerns were ignored. NSW Chinese higher education enrolments increased by 25 per cent between 2017 and 2019.

We need to ask why universities took these risks.

Government funding levels

A common belief  in university constituencies is that the government cuts going back to the 1990s forced universities to find other revenue.

Historical funding evidence suggests a short-to-medium term relationship between university income sources; that if one declines university leaders look for another. Universities have significant expenses budgeted for current and future years. Raising revenue is less painful than cutting spending.

Dips in expected Commonwealth revenue sent vice-chancellors looking for replacement income. A huge increase in globally mobile students this century, especially from China and India, provided a substitute revenue source. The recent push for JobKeeper support as international student fee income dropped is the same dynamic operating in the other direction.

But the sector narrative of continuing government funding cuts is only sometimes true. Teaching subsidies were frozen from 2018, but after a decade of strong growth. Since 2001, total revenue for Commonwealth support students has grown by 165 per cent in real terms. Although students pay more of their educational costs than previously, total public subsidies for teaching went up by 145 per cent.

International student numbers fell for a few years during this public funding boom. But this decline was not a university strategy.  It was a demand-side dip caused by changes in visa rules, a high Australian dollar, and negative publicity in India about crimes against Indian students. After these factors faded, international student enrolment growth resumed and continued until COVID-19 intervened.

The separation of teaching and research funding

Although domestic student funding policies intermittently trigger added recruitment of international students, research funding policies are a more significant factor. While Commonwealth research spending occasionally falls, as it has in recent years, the structure of research funding is a problem as well as the amount.

Over the last 30 years Commonwealth research funding has changed in important ways. The government phased out an overall block grant for teaching and research, which universities could spend according to their own priorities. Instead, teaching and research funding were separated.  If Education Minister Dan Tehan’s reforms receive Senate approval it will be the final divorce between public teaching and research funding.

This separation means that universities are publicly funded for teaching and research based on largely different criteria. For teaching, student numbers drive funding, while research is principally funded according to indicators of previous research success.

Teaching-research academic roles

The problem for universities is that combined teaching and research academic employment, still the single most common role for academics who are not casually employed, assumes a link between teaching and research funding. That is how the same person can be funded to undertake both activities.

In reality, however, apart from money that would be lost in the Tehan reforms, no links remain between undergraduate teaching and research public funding at the university, faculty, department or individual academic level.

The funding logic is that academic employment should be specialised, and indeed we have seen a rise of research-only and teaching-only staff. But teaching-only positions are resisted by academic staff and their union. This trend towards specialisation would have been much greater, except that international students, by typically paying fees well in excess of teaching costs, partially restored what three decades of public policy had worn away, a funding connection between teaching and research.

With financial surpluses on both international and domestic teaching set to take big hits at the same time it is not just the total number of academic jobs in jeopardy. It is the very nature of future academic employment.

Part-funded research grants

In addition to being separated from teaching, research funding was itself sub-divided into competitive project grants, mainly from the Australian Research Council and the National Health and Medical Research Council, and block grants which universities could spend on research-related activities.

Competitive project grants are typically only part-funded, on the assumption that block grants cover other costs. The problem is that research block grants are too low to meet all the costs associated with competitive grants. This means that although competitive project grants bring prestige and additional resources to winning universities, they generate more expenditure than revenue.

Again, profits on international students, by financing part-funded research projects, have helped maintain research practices that might not otherwise have been viable.

Research rankings

Structural changes in research funding have driven universities to recruit international students. But these explanations on their own don’t fully explain the massive increase in research expenditure this century. It nearly tripled in real terms, fueling a similarly large growth in research outputs.

Research rankings have produced an obsession in universities with maintaining and improving their positions. Because many universities around the world want to be in the global top 100 universities simply doing good research is not enough. Universities need rapid increases in both the quantity and quality of research.  It is not coincidence that the Group of Eight universities,  which have the most ambitious rankings goals, ended up most exposed to the international student market.

The future of international education

Australian universities still have a credible optimistic scenario of an international student market recovery starting next year. Although due to the COVID-19 recession fewer students can afford to study overseas at least in the short term, market surveys show that strong student interest remains. If major competitors, such as the UK and USA, cannot contain COVID-19 Australia may take an expanded share of 2021’s commencing international students.

But more pessimistic scenarios are also possible. Entry to Australia may still be restricted in early 2021, especially for students from countries where COVID-19 is not under control. A deteriorating political relationship with China could see a decline in or even the end of our biggest source market. Before COVID-19 highlighted financial risks, a long list of other concerns had been raised about international students, including academic integrity issues, the influence of the Chinese Communist Party, student exploitation, and migration. One or more of these could lead to university decisions, market reactions or regulatory changes that affect student numbers.

If a pessimistic scenario eventuates, the extraordinary increase in Australia university research this century will turn into a dramatic fall in research activity. Many thousands of academic jobs will be lost.

A large international student program is necessary for Australia’s universities. Government spending might increase but it will never match university ambitions. But hubris crept in through an over-emphasis on rankings, encouraging the risk-taking the NSW Auditor-General repeatedly warned against. Some moderation in the international education market is in everyone’s long-term interests.

Andrew Norton is Professor in the Practice of Higher Education Policy at the Centre for Social Research and Methods at the Australian National University. This article draws on a series of blog posts on how Australian universities became reliant on international students. Andrew is on Twitter @andrewjnorton