A catch-22 in proposed legislation, designed to protect Australian higher education from unethical operators, risks freezing out new entrants to the sector.

The “Integrity and Other Measures” bill, currently being scrutinised by a Senate committee, would restrict new colleges to teaching Australians for at least two years – to demonstrate their institutional quality – before they could recruit overseas students.

However, colleges have little prospect of attracting local enrolments unless the students can access , the government loan scheme that covers upfront tuition fees. To qualify as Fee-Help providers, colleges must demonstrate their financial viability – something most do by enrolling international students.

Department of Education require Fee-Help applicants to provide audited financial statements for the “most recently completed” operating period.

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Monash University policy expert Andrew Norton said that, in practice, newly registered colleges took between two and three years to qualify as Fee-Help providers. Most kept themselves afloat in the meantime by teaching international students.

Norton that Canberra risked creating a sector that was “largely frozen in time”. In a to the Senate committee, he called for the rule to be scrapped. “The government has not established that new higher education providers entering the international education market pose such a regulatory risk as to justify a de facto ban.”

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Policy analyst Neil Fitzroy said the proposed rule change constituted “an effective bar on new entrants in a part of the sector that has been proven to be innovative and forward-thinking and student-serving.”

Australia has about 170 higher education institutions in addition to its universities. Collectively they educate around 162,000 people, about one-tenth of the sector’s enrolments. Students pay full fees for their unsubsidised courses, and most undergraduates incur 20 per cent loan fees on top of their Fee-Help debts.

Despite this, many of these colleges notch exceptional results in the Quality Indicators for Learning and Teaching . Last year, non-university higher education institutions achieved the top 10 overall satisfaction ratings from undergraduate students, and the top 15 from postgraduate students. They secured the four best full-time employment rates for undergraduates and the 10 best for postgraduates.

Fitzroy, Australasian managing director of the Oxford International Education Group, said the new requirement would be an “inappropriate barrier” for investors in a sector with startup costs that could reach A$5 million (£2.5 million) before yielding any earnings. “It’s hard to see any route for someone trying to establish themselves.”

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He said the mechanism would also be an “effective moat” for incumbent colleges, increasing the value of existing operations in a sector shielded from new competition.

Tertiary education consultant Claire Field said the legislation was “a win” for established institutions. “There’s no question that those changes will make it harder for new providers to enter the sector.”

Field, a former regulator and head of a representative group for private education providers, said the constraint risked stifling new ideas in a sector whose viability was threatened by artificial intelligence and competitors with different business models.

She said private higher education colleges were “well regulated” and exhibited few of the quality concerns plaguing vocational education providers, yet barely registered on the “radars” of policymakers who only considered public universities when they talked about “diversity in the sector”.

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“That’s a shame,” Field said. “There are things that they can learn [from] some really innovative non-university providers.”

john.ross@timeshighereducation.com