The Federal Government is shutting down the existing Commonwealth loans scheme for students undertaking vocational education and training.

Widespread rorting has ruined the VET FEE-HELP program, since changes by the Labor government in 2012 removed the requirement for colleges to set up credit transfer arrangements with higher education providers.

Education Minister Simon Birmingham says it is time to start over.

“It's become apparent that to truly fix the VET FEE-HELP scheme we first need to exit, that the scheme is fundamentally broken from its construction and design and that we need to build a replacement model from the ground up.

“And by axing the VET FEE-HELP scheme we can be absolutely confident that we, therefore, get rid of the rogue providers and shonky operators from any new model without the type of legal impediments and court challenges that we've been facing as a result of our action to date.”

Changes coming in 2017 will include tougher restrictions on eligible private college courses, loan caps, student engagement requirements, and a ban on providers using recruitment brokers or directly soliciting prospective students.

Education Minister Simon Birmingham says the ACCC will continue to investigate dodgy operators.

“We're not proposing massive waivers because, of course, many students did sign up knowingly to what they were entering into. But where there are breaches of consumer law we will be working as hard as we can with the ACCC to make sure prosecutions occur and where there's evidence that people were misled into signing up to a course, then of course they can expect that those cases should hopefully lead to debt waivers,” he said.

The Australian Council for Private Education and Training agrees that an overhaul of the loans system is need, but says there was no consultation before the latest changes were announced.

“We think it's not before time, the sector certainly did need reform so in that sense they've been much needed, albeit far too late and far too close to the implementation date. Our general reaction is we're quite concerned that there's been no consultation about these changes with ethical educators and therefore we are worried about some of the nuances of the detail and some of the impact it might have on the sector,” the council’s CEO Rod Camm said.

The opposition leader Bill Shorten has slammed the Turnbull government for what he describes as a 180 degree back flip in its position, as it previously labelled Labor's call for action an attack on private education.

“The Turnbull government is still out of touch when it comes to apprenticeships and TAFE. What will drive the best training in the future for our young people and mature age workers is a strong public TAFE sector,” he said.

“They still see TAFE as a code word for cuts and not investment. We've seen 130,000 apprenticeships disappear under the Liberal government in the last 3-plus years. Until the Liberal Party back TAFE as their number one in the training sector and do something about employing and supporting tens of thousands of new apprenticeship places they're still going to be out of touch.”