The Federal Government's overhaul of the scandal-ridden vocational education sector has passed Parliament in a bid to end one of the worst chapters in Australian education history.

Key points: VET FEE-HELP program replaced with new scheme after rorting scandal

VET FEE-HELP program replaced with new scheme after rorting scandal New program caps loans, halves eligible courses

New program caps loans, halves eligible courses Union says new scheme "entrenches user-pays system" and will not help protect students

The former Labor government extended HELP student loans to the vocational training sector in 2009.

Since then, dozens of scandals emerged as dodgy private operators rorted the multi-billion-dollar scheme.

The Senate last night passed a bill scrapping the VET FEE-HELP program and replacing it with a new VET Student Loans program to begin on January 1.

"VET Student Loans will ensure students and taxpayers are protected, that skills shortages are addressed and that the reputation of the vocational education sector is restored," Education Minister Simon Birmingham said.

"We have rebuilt the system from the ground up to restore confidence in the VET sector and reassure taxpayers that the rorts are over."

The Opposition strongly supported the overhaul but failed in a bid to exclude state and territory-owned TAFEs from the new restrictions.

The new loans program will more than halve the number of courses eligible to about 350 and will make it harder for new operators to access the scheme.

It will also cap loans at $5,000, $10,000 and $15,000, depending on the course.

The Commonwealth will also have more powers to suspend and expel providers.

"A VET student loans program that has only quality providers operating within it, only delivering courses that are relevant to the employment outcomes for students and only charging fees that are actually efficiently priced to the cost of delivery to keep the costs down for those students," Senator Birmingham said.

Scheme does 'little to fix key flaws'

The Australian Education Union welcomed the move to scrap the VET FEE-HELP program but said the new loans scheme did "little to fix its key flaws".

"The new scheme entrenches a user-pays system which sees VET students, including those at TAFEs, responsible for funding their own education," the union's federal TAFE secretary Pat Forward said in a statement.

Court action is currently underway against a number of private training colleges, which allegedly targeted vulnerable people and lured them into enrolling with promises of free laptops and other incentives.

The Federal Government is facing hundreds of millions of dollars' worth of losses from VET loans that will never repaid.

Ms Forward also raised fears the changes would not protect students from dodgy private operators.

"Caps on loans are no substitute for a properly-regulated system, and will simply lead to dodgy providers cutting even more corners to deliver themselves taxpayer-funded profits," she said.

Ms Forward called on the Government to take a step further and "ensure that at least 70 per cent of all government funding is reserved for TAFEs, rather than have them continue to compete with low-quality private providers".