The number of students enrolled in 1874 government-funded training institutions fell to 5.9 per cent to 1.2 million in 2017 from the previous year, a report by the National Centre for Vocational Education Research shows.
The number of subject enrolments also dropped six per cent.
The bulk of students were enrolled in courses in New South Wales, where numbers dropped by nearly 31,000 to 454,000.
The ACT was the only state or territory that experienced growth in student numbers, increasing by 1000.
Based on students' ages, the biggest declines were among 45-65 year olds whose numbers dropped 11 per cent.
Last month, the Australian Education Union warned the sector was close to collapse because of Federal Government funding cuts of 15 per cent cut between 2007 and 2016.
The union says enrolments have declined alarmingly in the past four years, with TAFE now the worst-funded education sector.
Some state governments are trying to reverse the declines.
The NSW Government announced in its budget that it would scrap fees for 100,000 apprentices.
Victoria is also making almost 50 courses free.
The Federal Government provides $1.5 billion a year for state and territory spending on TAFE and vocational education.