Contracts with debt collection agents ARL Collect, Milton Graham and Probe Operations will expire at the end of the financial year and will not be renewed.
NDIS Minister Bill Shorten said the move was to ensure the illegal robodebt collection scheme never happens again.
"We have to look at the reality of who is affected,'' he said.
"It's often very vulnerable Australians, people who have gotten on government payments in the first place because they are at a vulnerable time in their lives.
"We have to stop giving their information to private companies and ensure the debt recovery process is lawful, fair and transparent."
Mr Shorten said while there will be "opportunistic behaviour" from people trying to scam government payments, Services Australia was capable of recovering debts.
He said collection agents would help people owing money through a "transition process".
"Government should never start from the position that the existence of an alleged debt means the citizen is guilty until proven innocent," Mr Shorten said.
"Flexible repayment options, short-term counselling, information and referrals to support systems may be provided."
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