The paper, marked "in confidence", has been circulated to state governments for discussion ahead of a planned Council of Australian Governments (COAG) meeting in March. It is likely to meet strong resistance, given the scandals that have plagued the federal government's vocational loans scheme in recent months. Former TAFE Directors Australia chairman Bruce Mackenzie fears the leaked proposals would force up costs for students. Credit:Rodger Cummins Former TAFE Directors Australia chairman Bruce Mackenzie, who recently completed a major review of TAFE for the Victorian government, said the ideas contained in the paper were "clumsy" and "outdated". Although the paper says a federal takeover would put downward pressure on fees, Mr Mackenzie said students would face higher costs and be saddled with increased debt if the proposals were adopted. "This is like a prehistoric monster risen from the dead," he said.

"Private providers are there to make money; it's very different to a public system and that needs to be recognised. "There is no evidence that simply increasing the number of providers in the system will lead to lower fees or better quality – quite the reverse." State governments now spend about $4 billion a year on VET, while the Commonwealth spends $3 billion. This does not include the almost $2 billion spent in 2014 on VET FEE-HELP loans. A spokesman for Vocational Education and Training Minister Luke Hartsuyker declined to comment. But government sources stressed the paper was a "work in progress" that was likely to be refined before COAG meets in March.

The federal government's HECS-style vocational scheme, VET FEE-HELP, has blown out in cost and been beset by dodgy providers enrolling vulnerable students into courses they are unlikely to complete. The leaked COAG paper states: "While prices will be deregulated, basing subsidies on analysis of the cost of delivery will increase competition and improve choice in the sector and see all providers competing on value for money and on the quality of their learning and training product. "Government-owned providers will be funded on the same basis as private providers." Funding would be "targeted and prioritised to support national skills needs and ensure budget sustainability". Australian Education Union federal TAFE secretary Pat Forward said: "This heralds a transition to a privatised, user-pays system. It would basically transform TAFEs into private providers which compete for federal funding."

Labor spokeswoman on vocational education and training Sharon Bird said: "Labor is greatly concerned that this is just an attempt to attack TAFE and shift even more debt burden on to students. "No one concerned to see our great TAFE system survive and grow in the future would want to see anyone in this government fully responsible for that future." Peter Noonan, an expert in vocational education at the Mitchell Institute, said it made sense to have a single system covering vocational funding and student loans. "Savvy TAFEs will be able to compete well with private providers in the market, if they are given independence," he said. with Ben Preiss, Eryk Bagshaw