Fees Paid in Advance

I find it interesting how we observe trends in compliance. It is an important aspect of our work because, it enables us to identify a trend in audit practices or compliance early so that we can ensure current and future clients benefit from this knowledge. The most recent of these trends is the regulatory focus on fees paid in advance for services being delivered. In the past three or four months, I have noticed a spike in audit outcomes that include findings in relation to fees paid in advance. I have also received an increased number of questions from clients about the rules relating to students paying fees in advance for services being delivered particularly in relation to the shift toward virtual service delivery. Clause 7.3 of the Standards for Registered Training Organisations (RTOs) 2015, specifically says the following:

7.3. Where the RTO requires, either directly or through a third party, a prospective or current learner to prepay fees in excess of a total of $1500 (being the threshold prepaid fee amount), the RTO must meet the requirements set out in the Requirements for Fee Protection in Schedule 6.”

Only applicable to individual learners

The first thing I would point out about this clause is that, it only relates to where an RTO requires a fee payment from a prospective or current “learner”. A “learner” is defined in the standards as a “person” being trained and assessed. So, this clause is not applicable where the RTO is requiring a payment from a business or non-person entity. If your RTO is delivering services to another business and the invoice is being issued and paid directly to the business, the restriction on fees which can be prepaid is not applicable. This clause is only applicable if you are collecting fees directly from a person as a consumer.

What if I only charge fees in arrears?

If you charge fees in arrears or at the end of the course prior to issuing the certificate, this clause (7.3) is not applicable to you. The only additional information I would mention here is that, you are not obliged to issue any AQF certificate unless the student has paid the full fee amount. The RTO is entitled to withhold issuing the certificate if the student has not fully paid their fees.

What does “prepay” mean?

There is no definition within the standard for “Prepay” or “Prepaid” or for that matter within the NVR Act. Obviously, it has a common meaning which is “paid for in advance”. Prepaid in advance of what? This is not specified in clause 7.3, but the very common and accepted interpretation is prepaid in advance of services being delivered. Schedule 6 is referenced in the clause and it does specify a number of times that the prepayment of fees relates to “services to be provided by the RTO”. Technically, you could make the argument that this is only applicable to unconditional financial guarantees and tuition assurance scheme approved by the VET Regulator. But, in the interests of having a basis to interpret the clause (7.3) let’s all agree that, when the clause refers to the prepayment of fees in excess of a total of $1500, it is meaning that prepayment is in advance of the services to be provided by the RTO.

What does “services” mean?

The standard does provide a definition for the word “services” it says:

Services mean training, assessment, related educational and support services and/or any activities related to the recruitment of prospective learners. It does not include services such as student counselling, mediation or ICT support.

So, one thing that you should take out of this definition is that services in the context of an RTO means training and assessment and related support services. A common question from clients in this space relates to the issuance of course material early in the course particularly when it is online. As an example, let’s say that the learner is seeking to enrol into a qualification that has 10 units of competency delivered online. The RTO has all 10 units of competency prepared in their learning management system with all course resources available and ready for the student to engage with. The RTO might argue that in opening up all 10 units to the learner at the commencement of the course with access to all learning and assessment resources, this constitutes the “service” being delivered and therefore, the RTO can invoice the total course fee at the beginning of the course.

I do not accept that making materials available online constitutes delivering training and assessment services. Training and assessment occurs only when the student actually engages the learning content and completes learning activities and undertakes assessment whether that be online or face-to-face. So, I do not agree with the rationale that just because the RTO provides the learner access to resources for a certain number of units of competency that this constitutes providing the services of training and assessment.

My strong advice is that the RTO define “services” to mean delivering training and assessment to achieve units of competency. If you want to define a specific point when a service is complete (so that you can charge for the next service) it is when the learner has completed the learning and assessment and is assessed as competent in the unit of competency. Using the achievement of units of competency as the basis of defining the delivery of the service provides the RTO a basis to determine the amount of prepaid fees it charges as a proportion as the course progresses whilst keeping under the prepaid fee amount threshold ($1500).

What about enrolment fees?

Let’s also consider the words from the service definition of “any activities related to the recruitment of prospective learners”. As an example, a student makes an enquiry with an RTO about a course. The RTO responds to the enquiry by contacting the prospective student and spends some time discussing the training options for the student. The RTO then provides the prospective student with pre-enrolment information and access to an online enrolment form on the RTO website. The student then completes the enrolment form which is processed by the RTO who then sends the student an online language literacy and numeracy assessment to gather information about potential needs for support and verify suitability for the course. The RTO processes the results of this LLN assessment to determine that the student is suitable and requires no special support at this point and sends a letter confirming the enrolment. The RTO also initiates the process of introducing the student to the trainer and provides access to related resources. All this activity cost money for the RTO to administer the enrolment, engage with the learner prior to enrolment, to provide pre-enrolment information, prepare and send correspondence and determine support requirements, et cetera. It is totally valid for the RTO to see this as part of the services they deliver and for that to be taken into account as part of any consideration of the prepaid fee amount threshold.

I do think it is acceptable for an RTO to collect an appropriate amount of money as enrolment fee. You will need to value this based on your own operation but typically this amount is around the $200 mark. The RTO can collect an enrolment fee when the student makes an application and after the enrolment is confirmed, that “service” is now complete. The RTO can then collect an additional payment in advance before commencing the actual training and assessment up to the prepaid fee amount threshold ($1500). There may be the view that in this scenario, the RTO has in-fact collected $1700 prior to the training and assessment commencing. This view does not place an appropriate value on the services delivered as part of the “activities related to the recruitment of prospective learners”. Where an RTO can go wrong with this approach is by charging an excessive amount as enrolment fee. I have seen some RTOs attempt to charge $1500 as enrolment fee which in my view cannot be justified. My advice would be to put a proper and realistic value on the cost of the recruitment and only charge an amount that can be justified for the services being delivered.

Prior to commencement or in advance of services being delivered

Another common misunderstanding in relation to the requirements for the prepayment of fees is the confusion between how much an RTO can charge prior to the course commencing and how much the RTO can charge in advance of services being delivered. In part, this confusion comes from previous standards and particularly the AQTF 2010 release and the superseded NVR Standards. Both of these standards imposed a different amount that could be charged prior to commencement ($1000) and in advance of services being delivered ($1500). I still come across RTO fee schedules and Student Handbook information which still specify this. This requirement is no longer current. With the introduction of the Standards for RTOs in 2015, the concept of differentiating amounts paid prior to commencement versus in advance of services being delivered was removed. Regardless of when you collect fees from students, at no time can it exceed the prepaid fee amount threshold and you should have a very clear understanding of how those prepaid fees relate to the services being delivered and are proportioned.

Proportioning fee payments in advance of services being delivered

So far in this article we have unpacked the concept of services and understand that services relate to delivery of actual training and assessment, support services and activities related to recruitment. I find an area that clients are sometimes confused is how to proportion the prepaid fees relating to the training and assessment. Some clients may choose to allocate the fees based on the course duration. So, assume the course is delivered over 12 months (4 Terms) and the total course fee is $7000. The RTO may plan to collect $1500 at the commencement of each Term with the balance being collected in a combination as an enrolment fee and a completion fee. In this scenario, the RTO is basing the collection of fees on a period of time, in this case a Term. Whilst this looks fine on fee schedule, it is often difficult to administer because as we all appreciate, students progress at different rates and, it also does not recognise that the costs to the RTO are not always equal for every Term. I also reviewed a fee schedule recently which identified the collection of fees paid in advance based on the percentage of the course completed. The problem I have with this is that there was no information provided to the prospective learner to define what substantiated a particular percentage. As an example it required a fee payment at 25% of the course. How does the student or for that matter the RTO know they have reached 25%?

It basically comes down to costing the services based on some type of measure and I would recommend that measure be the units of competency being delivered. I am sure that others will have equally valid concepts but using the units of competency satisfies most requirements. It enables the RTO to put a valid cost on each unit delivery and charge accordingly as the course progresses. It also means that the fees being paid by the learner have a specific end point when they are assessed as competent and awarded the unit of competency. The completion of one or more units of competency relating to the prepaid fee amount also acts as a clear trigger for the RTO to initiate the next fee payment. This can be proportioned for one or more units of competency at a time as long as the fee charged does not exceed the $1500. Happy that others will have their own view on this but, my strong advice is to use the units of competency as the basis for proportioning the fees to be paid in advance.

I also don’t mind a weekly or periodic debit. Lets say the course is $5000 and is delivered over 40 weeks. Not withstanding any enrolment fees, et cetera, the student would have a weekly direct debit of $125. This can help everyone to manage their cashflow but can be challenging on the accounting administration to manage and reconcile. If the student is progressing as intended, no problems. If the student’s progress begins to slide, there is a risk that the total debit amount can accumulate to exceed the prepaid fee amount threshold as compared with the students progress. This can make it tricky to manage. I personally would stick to using the units of competency as the basis for proportioning the fee payments.

Other options in Schedule 6

Schedule 6 to the standards for RTOs provides a number of options where an RTO is collecting fees in excess of the prepaid fee amount threshold. Ignoring government entities and universities, the RTO may hold an unconditional financial guarantee from a bank operating in Australia or may hold a current membership of a Tuition Assurance Scheme. Let’s have a look at these options.

Unconditional financial guarantee

Taking out an unconditional financial guarantee from a bank is basically the same as taking out a loan where an agreed amount of money often secured by an asset is put aside by the bank to be used in the event of provider default and the need to cover the costs of reimbursing currently enrolled students. This can often be expensive, will draw down on any equity you may have available in the asset and you will pay a significant service fee typically on a six-monthly basis. Obviously the cost of this depends on how much money you are seeking the bank to guarantee. This amount is determined by calculating the total amount of prepaid fees held by the RTO which are in excess of the prepaid fee amount threshold. Let’s look at a bold example. Say an RTO has 120 learners undertaking a course that costs $5500. Because the RTO has a financial guarantee, they are collecting the total amount upfront resulting in a total fee collection of $660,000 less the prepaid fee amount threshold of $1500 per student ($180,000) resulting in a total amount of prepaid fees being held by the RTO of $480,000. This is basically the amount you would need to secure as an unconditional financial guarantee. But, there is some scope to reduce this number further by taking into account the proportion of services which have been delivered to each student and calculating the residual amount which is outstanding. You would need to calculate this on an individual learner or cohort basis to then calculate the total residual prepaid fee amount at any one time giving you a more accurate average amount which needs to be guaranteed. This can vary greatly depending on your enrolment frequency. If you enrol large cohorts at the same time, then you would need to guarantee the maximum amount collected at the beginning of the enrolment. If you have a rolling enrolment then the average prepaid amount will be lower because some students are more advanced than others. We have experienced clients in the past paying the bank significant fees for the privilege of having a financial guarantee and often clients will overestimate the amount that needs to be guaranteed. This is generally not for the majority of domestic RTOs.

If you choose to establish an unconditional financial guarantee from a bank, I recommend that you retain evidence of how you calculated the guarantee amount in comparison with your financial records. You also need to provide the regulator with documentation supplied by the bank which confirms your unconditional financial guarantee. Over the years I have discovered during audits that the client is claiming to have an unconditional financial guarantee but, when I reviewed the documentation it had expired or was no longer valid. If you choose to use this option you will need to maintain the currency of the guarantee.

Tuition Assurance Schemes

The other option available is to hold a current membership to a Tuition Assurance Scheme. There is no currently approved Tuition Assurance Scheme available to RTOs under the Standards for RTOs 2015. The Australian Government does manage the Tuition Protection Scheme and you can access more information about this at the following website (Click). This service is only applicable to those RTOs delivering training to international students as a registered CRICOS provider and VET Student Loan (VSL) provider.

A very common point of confusion here is that people often confuse the Australian Government Tuition Protection Scheme as a Tuition Assurance Scheme. To be clear, when an RTO is paying a levy into the Tuition Protection Scheme (CRICOS and VSL requirement), for the purpose of clause 7.3, Schedule 6 of the Standards for RTOs this provides the RTO with coverage as a Tuition Assurance Scheme, but only for those students who are enrolled under  a CRICOS or VSL pathway. Of course, the ESOS Act also requires that not more than 50 per cent of the fees for an overseas student be prepaid (unless the student chooses to pay more). The TPS is currently going through a review and changes are expected to be announced in 2021 which may open it to domestic non-VSL providers. The important thing to note is that the TPS is an approved Tuition Assurance Scheme for the purposes of clause 7.3 but only for those students who are enrolled under  a CRICOS or VSL pathway. The TPS is not an approved Tuition Assurance Scheme for any other enrolment type.

Let’s look at an example

Just to bring it all together, let’s look at an example of a domestic RTO delivering a Certificate IV qualification which has 16 units of competency over 12 months. For the purposes of this scenario, let’s assume that all of the units of competency have an equal weighting in terms of the training and assessment required. Let’s say the RTO is charging $5250 as a total course fee. The RTO charges an enrolment application fee of $250, which is fine. This leaves a residual amount for the training and assessment to be delivered of $5000. This results in an average unit cost of $312.50. We need to work out how many units of competency we can realistically charge for in advance of services being delivered without exceeding the prepaid fee amount threshold of $1500. If we charge for five units of competency in advance it will exceed this amount at $1562.50. If we charge for only four units of competency in advance, then the fee payment is $1250. To charge the total amount of fees, we would need to charge $1250 in four payments every 4 units of competency.

But, there are many ways that you could structure the fees in relation to this scenario. As another example, you could have simply charged $1500 for five units in advance (5 units at $1500 x 3 payment = $4500) and then collected the final $500 payment for the final unit of competency on completion (prior to the issuance of any certificate). This would maximise the amount that you are charging in advance for the services being delivered and lowers the administration costs by reducing the number of payments. At the end of the day, there are many ways to do it, just don’t exceed the prepaid fee amount threshold as a proportion of the services being delivered. 🙂


I hope this information has been useful. As a general point regarding complying with clause 7.3, I would advise you not to be too tricky. I find that when clients get into trouble in this space, it is because they have tried to be too tricky in the way they structure their payments and define the “services” being delivered. As I said at the start of this article, the regulator does seem to have a little focus on this particular clause so, please take the opportunity to review your fee schedule and fee collection arrangements and make sure that you are compliant.

I love it when a client has a fee schedule that complies with the requirement and then during the audit I will request fee payment records for a sample of students and discover that the fees were not particularly collected according to the schedule. This is the difference between strategy and practices. Compliance is primarily about the outcomes being demonstrated by the RTO. Do yourself a favour and request your accounts or administrative area to provide payment records for a sample of students across different courses and see what turns up.

You can find more guidance on protecting fees paid by students at the following standards guide on the national regulators website (Click).

Good training,

Joe Newbery

Published: 10th September 2020

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