Australia’s third biggest export industry is in a complete shambles as a result of appalling failures of regulation and government policy.
The industry is education, which earns more than $16 billion a year in export revenue – just behind coal and iron ore – from teaching students that come here, mainly from Asia and the sub-continent.
Four colleges have collapsed just weeks before their students were due to graduate and qualify for permanent residency, and it’s front-page news across the region. The situation hasn’t been helped by a spate of muggings of Indian students by racists.
So when the Prime Minister Kevin Rudd arrives in India this morning to try to talk about “closer ties”, there is only one thing the Indians will want to talk about: what’s happening to the education of their kids, why are they being bashed up and why are student visas now suddenly being rejected?
Actually, let’s face it: this is really the immigration industry, not education.
Foreign students come here in their tens of thousands on student visas because it’s much easier to pay an education agent for a visa, and to fly in by plane, than to pay a people-smuggler for a spot on a leaky boat.
The student visas previously were easily converted to permanent residency under the “migration on demand list”, thanks to the policy introduced by Phillip Ruddock in 2001 that determined they no longer had to return home to apply for PR. That conversion process has recently been made much tougher, but still exists as a route to permanent residency.
The Ruddock policy is almost entirely responsible for Australia’s booming immigration levels over the past few years. It’s therefore partly responsible for the fact that house prices in Australia have held up and the construction industry is doing well, building thousands of single bedroom apartments in Sydney and Melbourne.
The students are also responsible for funding Australia’s tertiary education sector: without the revenue from foreign students it’s unlikely that a single Australian university would be viable.
So while Australia is riveted by 78 unfortunate Sri Lankans on a boat in Indonesia, the real story is about the 800,000 young Asians now living in Australia on student visas with “work rights”, or with permanent residency.
Many of the students are from China and India, driving taxis, washing dishes and cleaning hotels, while attending the occasional cooking class so they can qualify for permanent residency. They are Australia’s Mexicans.
The problem is that the 2001 Ruddock policy of issuing automatic student visas (no checking) and loosening permanent residency requirements was not accompanied by better regulation of the industry that supplies the services.
So while many of the providers of education are reputable, including most of the universities and many long-standing private colleges, a new group of fly-by-night colleges has sprung up in recent years in response to the colossal demand for permanent residency in Australia, offering cooking and hairdressing courses that would get the students over the line for residency. (Actually, these skills have now been taken off the new ‘critical skills list’ – the Rudd Government’s replacement to the ‘migration on demand list’ – and so no longer guarantee PR for the students.)
These courses are sold by agents operating throughout Asia, openly selling permanent residency, not education. The standard commission paid to them is 15%, but lately some of the newer Chinese and Indian-owned colleges have been paying up to 40% commission.
In these cases it’s obvious that there isn’t enough money left to pay teachers for the kids and rent for the classrooms.
Also, the industry has been largely unregulated, so incompetent owners – and worse – have got involved in the boom.
The result of large commissions to shonky agents and incompetence and fraud in running the colleges has resulted in many of them becoming nothing more than Ponzi schemes, where more and more new students are needed to pay for the education of the existing ones.
I don’t know the exact circumstances behind the collapse of the Meridian group of colleges last Friday, leaving thousands of foreign students milling about outside in confusion and distress. But the business was bought six months ago by a Chinese national and registered in the Cayman Islands.
Other colleges also owned offshore have collapsed, with administrators and receivers changing the locks and students stranded, having paid large sums for a qualification that they thought would get them permanent residency, so they can keep driving taxis (they are very unlikely to get jobs in the discipline they have studied).
Some, if not all, of the collapses may have been triggered by a sharp clamp down on student visas by the Department of Immigration and Citizenship this year, although it is hard to know for sure.
However, industry sources tell me that the rejection rate has suddenly jumped from about 20% to 70%. Visa approvals are discretionary so an increase in rejections doesn’t have to be announced.
The industry believes there has been a deliberate increase in the rejection rate, prompted by complaints from unions about the number of jobs being taken by foreign students.
One thing that has been announced is that the living allowance requirement has been increased from $12,000 a year to $18,000 a year.
The manager of one big college told me this week that he is now refunding $600,000 per week to students who had paid for their courses but now can’t get visas. Last year the visas were awarded automatically, but no longer.
It seems likely to me that a factor in the recent college collapses would have been the sudden drying up of student visas. There is nothing surer than the collapse of a Ponzi scheme once new money dries up.
This article first appeared on Business Spectator.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
