Profit-making colleges would receive taxpayer funding to teach students unproven alternative remedies such as homeopathy, flower essence therapy and iridology under the Abbott government's proposed higher education reforms.
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The move comes as the government considers stripping the private health insurance rebate from any policies covering natural therapies not supported by evidence.
As well as deregulating university fees and cutting university funding, the government's higher education reforms would extend funding to private colleges, TAFEs and sub-bachelor degree programs at a cost of $820 million over three years.
Accredited private colleges would become eligible for grants of $6323 a year for each student enrolled in courses such as homeopathy, naturopathy and mind body medicine. This is more than public universities would receive per student studying law, economics, languages or the humanities under the new funding structure.
The Australasian College of Natural Therapies, for example, would be eligible for subsidies for its Bachelor of Health Science (Naturopathy), which teaches students homeopathy, iridology and Bach flower therapy.
It would be "absolutely unacceptable" to give taxpayer money to such colleges, Emeritus Professor of Medicine at the University of NSW John Dwyer said.
"TEQSA [the Tertiary Education Quality Standards Agency] has dropped the ball by approving these courses," Professor Dwyer, who is also president of Friends of Science in Medicine, said. "It should de-accredit colleges teaching homeopathy and other pseudo-scientific treatments as if they are credible health options for Australians."
Students at such colleges currently receive government loans but must pay full fees.
A major study released last year by the National Health and Medical Research Council found no compelling evidence that homeopathy, which uses highly diluted substances to treat symptoms, is effective.
Multiple studies have had found iridology, which uses marks and colour changes in the eye to diagnose problems in the kidney, liver and other organs, to be no more effective than a placebo.
But such therapies are increasingly popular. Benefits paid by health insurers for natural therapies grew by 345 per cent over the decade to 2013.
Gilliane Burford, chief executive of the Paramount College of Natural Medicine, said: "We're very serious educators and we deliver good quality and value for our students.
"Natural medicine complements mainstream medicine when it doesn't have all the answers or meet the needs of the individual."
Labor higher education spokesman Kim Carr said it would be illogical for the government to cut insurance rebates for alternative treatments while extending funding to colleges teaching them.
"It is unclear how, without a substantial increase in resources, the government will ensure that TEQSA can effectively ensure quality and appropriate expenditure of what will be public funds flowing to these providers for the first time," he said.
Education Minister Christopher Pyne said private colleges would have to meet the same standards as public universities to be eligible for Commonwealth Supported Places.
Acting TEQSA chief commissioner Nicholas Saunders said private providers are accredited only after passing a rigorous assessment process overseen by external experts.
Some universities also offer courses in complementary medicine, Professor Saunders said.
The University of Technology, Sydney and RMIT University offer bachelor degrees in traditional Chinese medicine and Charles Sturt University offers a bachelor degree in complementary medicine. CSU stresses that its students are not taught homeopathy, iridology or other subjects not based on experimental evidence.
Southern Cross University previously offered a bachelor degree in naturopathy but recently scrapped it.
Major reviews under both the Rudd and Abbott governments have backed extending federal funding to private providers, saying it would correct the historical anomaly that only students in one system receive support.
