The Turnbull government will freeze payments to private colleges as an emergency measure in an early move to overhaul the scandal-plagued vocational loans scheme.
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From next year, loans to private colleges accessing the VET FEE-HELP scheme – a HECS-style loans system for vocational training students – will be frozen at 2015 levels.
This means that if a training provider billed the government $40 million this year, it will not be able to access any more than that amount next year.
Payments will also be suspended for providers if they are believed to be dodgy and colleges will now be paid in arrears rather than in advance.
Vocational education and skills minister Luke Hartsuyker said the "urgent" measures were necessary to protect students and taxpayers from abuse.
"These measures … will address significantly many of the issues which are of such great concern to the community, to students, to taxpayers," he said.
Mr Hartsuyker said the government would overhaul the VET FEE-HELP scheme over coming months while the freeze is in place. The government will consider measures such as capping the amount colleges can charge for a diploma or limiting the loans scheme to courses of high national priority.
TAFE Directors Australia chief executive Martin Riordan praised the "extraordinary emergency measures".
"This long-awaited crackdown, including an immediate pause on loan payments to poor performing registered training organisations, or those suspected of gaming loans with 'phantom students', is much needed," he said.
The cost of VET FEE-HELP loans ballooned from $699 million in 2013 to $1.76 billion last year and is expected to soar again this year.
The sector has been beset by scandals over recent months, leading the Australian Competition and Consumer Commission to investigate 10 training providers for misleading and unconscionable conduct.
The federal regulator has also threatened several colleges with deregistration for misleading marketing practices and offering low-quality courses.
The Phoenix Institute was deregistered after Fairfax Media revealed the college had employed dozens of salesmen, many working door to door, who offered free laptops to vulnerable people, including drug addicts and those with intellectual disabilities, to sign them up for online diploma courses they would never complete.
Labor higher education spokesman Kim Carr said the vocational education system was in "crisis" and said the government had acted too slowly to rein in abuse.
"Turn off the tap of the billions of dollars that are flowing to these shonks, these shysters," he said.
Labor has proposed capping tuition fees, lowering the amount students can borrow from $98,000 to $49,000 and creating a new complaints ombudsman.
The VET FEE-HELP scheme allows students to start paying back their debts when they earn $54,000 a year. The Grattan Institute estimates 40 per cent of vocational students – double the number with a bachelor degree – will never repay their loans because of lower salaries and more time spent out of the workforce.
The government's new measures will be introduced as amendments to an existing bill that bans students from being charged up front and requires them to have year 12 equivalent qualifications.
