What is a student fee protection trust?
THE New Zealand Qualifications Authority (NZQA) sets a student fee protection pPolicy under section 253(1) of the Education Act. It requires private training establishments (PTEs) to put in place measures to protect the fees paid by their students against loss should a course or the PTE close (see LawTalk 620, 7; 15 March 2004). The options include creating student fee protection trusts.

In recent years, solicitors, chartered accountants and trustee companies have acted as trustees for certain student fee trusts. Following the failure of some PTEs last year, NZQA proposed that only trustee companies should be able to act as trustees. The NZLS and the Institute of Chartered Accountants successfully resisted that move and have helped the NZQA draft model trust deeds for solicitor and chartered accountant trustees.

The new student fee protection policy, trust deeds and guidance notes for trustees and PTEs are on NZQA’s website at www.nzqa.govt.nz/for-providers/aaa/trustdeeds.html. Solicitors may act as trustees for either "standard trusts" or "static trusts".

Trustees’ duties for standard trusts
Trustees’ duties will be quite onerous, as they reflect NZQA’s concern about the need to strengthen protection for PTE students. Most of the accounting requirements will fit within the existing framework governing solicitors’ trust accounts, but solicitor trustees will also need to develop robust ancillary systems and maintain close working relationships with the PTEs to ensure that the scheme works efficiently.

Solicitors considering accepting a trusteeship under the new requirements should consider all aspects carefully, particularly the establishment of an appropriate remuneration regime and a detailed written engagement agreement with the PTE. The NZQA guidance notes will help. However, some practical considerations are not covered by the guidance notes, particularly in relation to the fees charged, the work involved in a "course closure event", and independence and accounting requirements.

If a "course closure event" happens (eg, a course or the PTE itself folds), the trustee will have to undertake a considerable amount of work, including:

• working out to whom the funds held are to be paid;
• dealing with NZQA’s requirements and inquiries from students; and
• making the various payments required to alternative education providers, loan providers or the students themselves.

Trustees will not be able to deduct fees for their services from the trust funds, though they will be able to deduct fees from any payments of interest to the PTE. Trustees should address the question of administration fees with the PTE at the outset and ensure that they have the appropriate authority to deduct fees from payments due to the PTE. They will need to build into their fee structure an allowance for the possibility that, by the time a "course closure event" occurs, the PTE may be insolvent.

Trustees will hold the fees in trust for both the PTEs and the students for their respective rights and interests, and must act primarily in discharge of their fiduciary duties, as defined by the terms of the trust deed, to these beneficiaries.

The standard deed emphasises the independence of the trustee. Solicitors undertaking trusteeships are urged to read carefully both the trust deed (in particular clause 9.3) and Chapter 1 of the Rules of Professional Conduct, with particular attention to Rules 1.03, 1.04 and 1.07. These will be particularly relevant where PTEs ask their own solicitors to be trustees of fee protection trusts. Trustees will also need to take care that they do not unwittingly breach the independence requirement by either themselves or their partners holding shares or directorships in PTEs for whose trusts they are trustees.

Solicitor trustees will need to be up to date with the trust accounting rules set out in the Solicitors Trust Accounting Handbook (3^rd Edition January 2004). They will need to set up systems to deal with:

• the receipt and recording of student fees;
• the splitting of those fees into the three categories (tuition fees, accommodation expenses and living expenses); and
• the regular disbursement of fees in accordance with the requirements set out in the trust deed and its schedules; and.
• the provision of regular quarterly reporting schedules to NZQA on the amounts held in trust.

Static trusts
A static trust is a cross between the standard trust and a bond. In a static trust, sufficient funds are set aside in a trust account to cover the maximum liability for student fees. Regular transfers between the trust account and the PTE's operating account are not required, reducing costs compared with a standard trust. The major downside of static trusts for PTEs is that they tie up funds.

Solicitor trustees of static trusts will find many of the comments above about standard trusts apply to their role also.

For more information on the trust deeds or monitoring requirements, contact NZQA.