The Australian federal government's new loans program for vocational students has passed the Parliament, in attempt to overhaul the vocational education sector.

Starting on January 1, the new VET Student Loans program will be replacing the VET FEE-HELP program which had been the center of scandals for the past years.

"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," said Education Minister Simon Birmingham.

He furthered by saying that they have rebuilt the system in order to restore the confidence in the VET sector and assure the taxpayers that they aim to end rorting in the new loans scheme. The new program gives more powers to the Commonwealth to suspend and expel providers.

The overhaul gained strong support from the Opposition. However, it failed in a bid to exclude state and territory-owned Technical and Further Education institutions from the new restrictions.

The new loans program will limit the number of courses eligible to more than half the previous number. It will cap loans at $5,000, $10,000 and $15,000, depending on the course.

"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.

VET Student Loans, however, was seen to do "little to fix key flaws" according to the Australian Education Union. Although the union favored the government's move to get rid of the VET FEE-HELP, it believes that the new scheme will not help protect students.

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

"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 added.

She called for the government to take further measures to ensure that at least 70% of the government funding will be reserved for TAFEs instead of having them compete with low-quality private providers.