Lancaster University may have to close Charlotte Mason College in Ambleside, Cumbria, in the face of Government funding cuts combined with an Ofsted report due in a few weeks which rates important areas of its work as unsatisfactory.

University secretary Stephen Lamley said no decision had been taken and everyone was shocked by the position. Several options were being considered, none of which was "particularly palatable". The college, a large provider of teacher training, merged with the university in 1992.

Closure is one option although the university would like to avoid it. Another possibility is to merge with highly-rated St Martin's College in Lancaster. Mr Lamley said: "This may be the best way of providing initial teacher training in Cumbria and North Lancashire and would make St Martin's one of the biggest providers of teacher training in the country."

He added that the university does not have enough money to bring the college up to the level needed for a satisfactory report when the college is reinspected. The primary concern was to safeguard students whose position could become "extremely difficult" if it failed again.

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Accreditation could be withdrawn from the college, leaving students without a qualification. Recruitment for September 1996 is going ahead as normal.

The vice chancellor of Lancaster, William Ritchie, explained the position to staff at a two-hour meeting on Tuesday night. Afterwards Chris Rowley, branch secretary of lecturers' union Natfhe, said there were mixed feelings among the 100 plus staff.

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"I am concerned that the Ofsted report itself is not the prime motivator, rather the university's own financial position may be behind this," Mr Rowley said. "Our site in Ambleside is right in the middle of the Lake District and is very valuable."

Mr Rowley said an unsatisfactory Ofsted report was no justification in itself for closing the college since the inspection had been based on a small sample of students and it did not acknowledge postgraduate work which was graded "excellent" or "satisfactory".

Mr Lamley said the university was not considering selling the Ambleside site.