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Fifty-eight colleges are expecting to face technical insolvency according to unpublished financial forecasts received by the Further Education Funding Council in March. A further 303 colleges - more than two-thirds of the sector - were forecasting operating deficits.

The colleges' final returns are to be submitted to the FEFC in November. A source claimed that the final figures may reveal an even worse position than the one implied in the predictions.

The funding council has refused to comment on the forecasts and questions were being asked this week about why such a serious problem remained under wraps.

The implication is that a rising number of colleges are now in a vulnerable position and face the prospect of closure because their liabilities exceed their assets. Earlier forecasts were more optimistic.

A source said: "This must give rise to serious concern about the level of underfunding in the sector as colleges struggle to meet stiff targets, and about the level of complacency which the sector cannot afford."