At least 80 jobs, including 50 academic and managerial posts, are to go at Rotherham College of Arts and Technology in a rescue package to drag the institution out of deepening debt.

The college was already being rescued by the Further Education Funding Council after hitting financial difficulties last year. It is one of four in Yorkshire believed to be on the FEFC’s “sick list”.

Revelations of the problems sparked rumours among neighbouring principals that it may be forced to merge, or go under. Managers say they have had merger offers, but deny the college is in jeopardy.

The crisis adds urgency to a campaign launched this week by the Association for Colleges, the Colleges’ Employers’ Forum and other college associations to lobby ministers for more investment.

Dr John Molyneux, Rotherham principal, has taken early retirement, and Colin Scott has resigned as chair of governors.

Staff in NATFHE, the lecturers’ union, are balloting on industrial action over the redundancies, which managers admit are likely to be largely compulsory. NATFHE says alternative measures would avoid big job losses.

Rotherham fell into serious problems in 1994 when it lost about Pounds 1 million of European Social Fund cash. The FEFC came to the rescue but when an audit of student records showed inaccuracies the council clawed back cash.

Graham Pears, acting principal, said the college was spending too much on staff and now planned to cut that budget by Pounds 1.5 million. He said: “The actions that should have followed the recovery plan have not been taken quickly enough.”

Margaret John, NATFHE regional official in Yorkshire and Humberside, said: “The lecturers are being made to pay for the mistakes of the managers.”

Principals elsewhere in Yorkshire watched the situation anxiously. One said: “This is the first real test of whether a college will be allowed to go under. I think a lot of principals are saying ‘There but for the grace of God go I’.”