Fly-by-night private colleges with high drop-out rates are set to lose access to taxpayer subsidies under a federal government plan to "smash" the business model of dodgy operators.

The Turnbull government is also considering imposing limits on how much students can be loaned for particular vocational courses and restricting funding to courses with strong employment outcomes.

Left-field courses with poor job prospects such as performing arts and art therapy are likely to be ruled ineligible for government funds.

Education Minister Simon Birmingham will announce on Thursday that he is finalising a major overhaul of the government's scandal-plagued vocational loans scheme to come into effect next year.