The Federal Government is unlikely to recoup $2.2 billion paid to shonky vocational training providers, according to a new report from the National Audit Office.

The money was loaned as part of the VET FEE-HELP scheme that will be scrapped at the end of this year.

Under the scheme, the Department of Education paid tuition fees directly to training institutions, with the loans owing peaking at $2.9 billion in 2015.

The National Audit Office's report is damning of how the department managed the scheme.

"Providers were not effectively monitored and regulated by [the Department of] Education," it stated.

"The department's focus on increasing participation overrode integrity and accountability considerations.

"Weaknesses included ... inadequate monitoring, investigation and payment controls for poor or non-compliant providers."

Students were inappropriately loaned $1.2 billion, and another $1 billion was loaned to students unlikely to ever meet their repayment obligations.

The scheme was expanded in 2012 to allow training providers to set their own fees.

Poor student protection

Under the scheme, unscrupulous training providers used incentives like free laptops to sign up students who were unlikely to ever complete courses.

They then claimed those students' fees directly from the Department of Education, which never checked the enrolments independently, according to the report.

"Insufficient protection was provided to vulnerable students," the report states.

"Weaknesses included insufficient safeguards for students from misleading or deceptive conduct."

The report stated the Department of Education realised the extent of the problem in late 2014, but it was not until October this year the Education Minister announced it would be scrapped.

It will be replaced with a new scheme from January 1, 2017.