And they say the plan will have little or no impact on skill shortages.
Leesa Wheelahan, an expert in vocational education, said colleges would take advantage of the loans to boost fees for students.
Victorian diploma fees have tripled to $2500 since the state implemented similar reforms in 2008, making them the most expensive government-subsidised diplomas in Australia. Government-subsidised advanced diploma fees cost $990 a year in Tasmania, $1212 in Western Australia, $1350 in the ACT and $1570 in NSW. At the same time there are questions over whether the Victorian reforms have increased student numbers, or simply shifted private, fee-paying students on to the public purse.
Phil Lewis, a professor in labour market economics, said the Prime Minister's plan would be unlikely to affect skill shortages.
"On the margins it may help poor kids who may have been put off by the upfront fee,"Professor Lewis said.
Pat Forward, national TAFE secretary for the Australian Education Union, was also concerned the move would simply shift the burden of cost.
She said many VET students were debt averse and would be wary of a HECS-style scheme. "They tend to be working-class kids and they are not confident that training will lead to better jobs," she said.
But TAFE Directors Australia said the move would elevate the status of vocational training.
"This will really give career counsellors a big change in their approach," said chief executive Martin Riordan.
The government is offering an additional $1.75 billion on condition the states agree to the loans and guarantee students subsidised places up to certificate III level.