European income to the sector is projected to drop from pound;20 million in 2004-05 to pound;10.6 million in 2007-08 as a result of restructuring of regional development and social funding from the EU following its enlargement to 25 member states two years ago.
The funding council's review of how much European funding each Scottish college has received also contains a warning that a small number of colleges fear they may have to restructure staff in the event of a loss of income.
The review by the council, published this month, shows that, over the five years from 2000-04, the sector claimed pound;97.6 million in European funding. Altogether, pound;124.6 million worth of bids were approved: the gap of Pounds 27 million is accounted for by differences in timing between approvals and claims and the fact that not all approvals were fully utilised.
In addition, the results do not reflect the indirect funding that colleges receive from other organisations which claim European Social Fund money.
Given that European grants are matched by funding from college budgets, the total amount from Europe going into colleges over the period comes to Pounds 277 million.
The report is the most detailed financial analysis of the impact of European funding restructuring to date and will strengthen the resolve of the Scottish FE sector to press the Scottish Executive for help in the next spending review.
European money has not just been spent to combat disadvantage, however. It has also led to substantial improvements in the FE estate. In the west of Scotland alone, regional development support has helped provide a new campus for John Wheatley College in Glasgow's Easterhouse, the Kilwinning outpost of James Watt College, an arts centre "fame academy" at Ayr College, a new technology and business centre at Cardonald College, a business learning zone at Central College of Commerce, business and integrated learning centres at Langside College and a learning centre in Kirkintilloch for Cumbernauld College.
Tom Kelly, chief executive of the Association of Scotland's Colleges, said the loss of the additional revenue could be felt most keenly by programmes dealing with the disadvantaged. He also suggested it could increase competition between agencies which ought to be working in partnership.
Roger McClure, the funding council's chief executive, warns colleges in the report that "the need for contingency arrangements remains paramount".
The amount of funding available will also vary from one part of the country to another, depending on eligibility for potential programmes. Highlands and Islands colleges are likely to receive funding at around 60 per cent of current levels, but other areas will probably receive no more than 45 per cent of current allocations. Monies also varied from one college to another, with figures ranging from 0.4 per cent to 15.4 per cent.
The SFC review states: "For the majority of colleges, ESF (European Social Fund) income has to date been used to support social inclusion, widening access and targeted skills training. This in turn may impact on the achievement of student activity targets, fee waiver grant claims and social inclusion funding."
It adds: "A small number of colleges also stated that income may be indirectly affected through the impact of client organisations facing a reduction in ESF grant. Colleges are involved in various partnerships with the voluntary sector, local councils, local enterprise companies and other agencies."
It warns that contingency arrangements are particularly necessary for those colleges which are using ESF grants to augment what they are already doing to make their standard programmes better, because the costs associated with running European projects are embedded within the overall cost structure.
However, the transition for colleges running discrete, standalone projects should be less challenging, it suggests.
A spokesman for the executive said there was "no evidence at this stage to suggest that colleges are likely to receive a cut in future funding disproportionate to other sectors of the Scottish economy which have been used to receiving structural funds support".
He did say, however, that colleges outwith the Highlands and Islands would see EU support for capital spending "diminish substantially".
Ministers would take account of the impact on the college sector of any reductions in current sources of funding.