It's a big downturn from the $4 million surplus recorded in 2018, but TAFE chief Mark Fidge says a surge in enrolments in "free" state government funded courses forced it to hire more staff.

Mr Fidge said the enrolments increased 30 per cent last year after the state government made more than 35 courses connected to workforce needs free, with enrolments in those courses increasing 100 per cent.

"To support the unexpected growth in free TAFE we employed a significant amount of new staff both in teaching and non-teaching," Mr Fidge said.

"We also needed extra equipment, facilities and infrastructure."

The training provider's salary expenditure increased $2.6 million as it employed an extra 100 staff to deliver those courses.

It had expected the Victorian government to contribute 67 per cent of its revenue last year, but that turned out to be 81.5 per cent due to the popularity of free courses, Mr Fidge said.

He said the TAFE had also received a government funding worth more than $3 million in 2018 for research projects, but the work occurred last year and skewed the financial reporting.

But Mr Fidge said overall the biggest issue the TAFE faced was that it had "smaller class sizes and thin margins" compared to metropolitan providers.

"The government recognise that is an issue for regional TAFEs," he said. "Specialist engineering classes for example can be small in numbers, yet it's such an important industry for our region, so continuing those courses is critically important.

"Ideally you'd like to have 16 or 18 students in a class, but some might run with 10 or 12. While costs remain the same, the revenue is down, it's based per student."

Mr Fidge said his team was looking at how costs could be saved using online and remote learning in courses which pooled resources across the four campuses where it worked for students.

"As the last three or four months has shown, we can run classes across the campuses which makes them more financially viable," he said.

"The last three or four months has made a step forward a whole lot quicker than we would have been able to do."

State opposition higher education spokesman Gordon Rich-Phillips said the sector lost $43.8 million in 2019 with eight of 12 individual TAFEs recording losses.

"Our country TAFEs are among the worst hit, and the government must ensure they can continue to deliver courses to regional communities," he said.

A state government spokeswoman said the TAFE was delivering high quality training that is leading to local jobs in the community.

"South West TAFE undertook significant change in 2019 with the launch of free TAFE and the rollout of the first year of the MEA that makes South West TAFE teachers now amongst the highest paid teachers in the country," she said.

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