Readers of Fairfax Media may have seen a piece of investigative journalism covering the alleged unscrupulous acts of VET (Vocational Education and Training) education sellers that was published this week.
While there are no implications that publicly-listed companies are involved – asides from an acquisition made by Australian Careers Network Ltd (ASX: ACO) that is now on the straight-and-narrow – the article has added to my conviction that education providers face significant headwinds in their future.
At the end of August I wrote on that a weakening employment outlook in Australia could affect the likelihood of graduates (of all courses, not just university degrees) getting work which would, presumably, reduce the incentive for individuals to undertake courses like those offered by Navitas Limited (ASX: NVT), Vocation Ltd (ASX: VET), and Intueri Education Group Ltd (ASX: IQE).
Combine this with the rampant selling of courses and certificates and a massive surge in the government education bill (which funds the FEE-HELP and HECS-HELP loans that pay for courses) and I suspect the party could be set to come to a halt pretty soon.
Fairfax reported that the Federal education loan system has grown at twice the expected rate, from $325 million in 2012 to $1.5 billion in 2014. While there will always be a need for education I suspect that many of the courses – particularly generic ones in business or niche ones like the ambiguous 'Diploma of Security' – are often oversubscribed compared to the number of jobs available in that field.
I further believe it is unlikely that the education system in Australia can continue to grow at the rate it has been, particularly since the number of roles available for graduates in many fields is not growing at anywhere near the same rate.
Fewer students would see a large number of education providers competing with each other for places, which would crimp margins. Furthermore, If the situation as presented by Fairfax is in any way representative of the wider range of education providers, then student funding could become substantially more difficult to obtain.
Accordingly I feel it might be wise to steer clear of the pure-play education providers for now.
