Publication of the first firm evidence of the crisis coincides with Labour's announcement of a sweeping review of student grants, discretionary awards, child benefit and other social security support. It has pledged to stop students dropping out through poverty.
A study of colleges by the Association for Colleges in the Eastern Region (one of 12 FE regional councils in England and Wales) confirms long-standing concern throughout the sector that Government-set limits on the time claimants can spend studying are harming retention rates.
The survey finds many unemployed people face obstacles to education and training because of inconsistency in the way benefit offices interpret the so-called 21-hour rule, which means that those studying for more than 21 hours a week forfeit benefit.
A Labour party spokesman said: "We are committed to relaxing the rules so that unemployed people can take appropriate training courses without being penalised."
The review team includes shadow chancellor Gordon Brown, education spokesman David Blunkett and social security shadow Chris Smith. They are calling for a rethink of the benefit rules and a shake-up of grants and awards, including child support and career development loans.
The inequities of the 21-hour rule revealed by the research alarmed the review team. They are also concerned as the limit is to be cut to 16 "guided learning hours" in October.
Wide variations exist in the methods used by social security officials to calculate the length of a course, the ACER study shows. Some include only teaching hours, while others include exam hours and time spent working at home, leaving students at the mercy of individual advisers' policies.
Some of the 23 colleges surveyed reported students on the same course were treated differently depending on their benefit office. Those on access courses, geared to individual students' needs, faced particular problems proving they fell within guidelines.
The ACER analysis gives a proportion of students who had dropped out or never joined courses because of benefit regulations. It estimates that at least 20,000 jobless people had faced the same fate nationally.
The real figure is believed to be far higher, because colleges cannot measure numbers of potential students who are deterred even from enrolling by benefit hurdles.
The figure confirms estimates by the Association for Colleges, said chief executive Ruth Gee. She called for tough and clear proposals from Labour's fuller review, saying: "This is not a time for more analysis but for action. "
Tony Pitcher, director of South East Essex College, said his college had seen a 10 per cent drop in adult students as a result of the 21-hour rule restrictions. "The adjudicators seem to push people into corners, saying if you are attending college you cannot possibly be available for work."
John Graystone, chief executive of ACER, said the survey provided obvious evidence of inconsistency, and called for clear rules for all. He added: "Unemployed people seeking to improve their job prospects are the losers and so is the country."