National star College has been devastated by a capital funding blow that has left it with the prospect of educating severely disabled students in overcrowded and outdated buildings.

The independent college, near Cheltenham, which caters for people with severe and complex physical disabilities including brain injuries, had bid for Pounds 10.4 million to complete the third and fourth stages of a Pounds 15.4m programme.

In 2006, the Learning and Skills Council agreed in principle to pay half the money. It provided half of the Pounds 5m cost of phases one and two, and the college was expecting more money to allow completion.

Now it has learnt it is one of more than 160 institutions to have had their capital funding turned down by the council.

Helen Sexton, the principal, said: “This news has stopped us in our tracks. While the college has invested extensively in developing the expertise to provide high-quality programmes for new learners, the accommodation for learning, living, specialist intervention and skills for work have been left behind. The main campus is now severely outdated and overstretched.”

Ms Sexton said she thought the college, officially called the National Star Centre for Disabled Youth, would get funding approval because of its role in educating people with acute special needs and because the first two phases were completed. It is now considering lobbying the Government. It already has the support of Martin Horwood, Lib Dem MP for Cheltenham, and Geoffrey Clifton-Brown, Tory MP for Cotswold.

Mr Horwood said: “This is an exceptional college. The transformation of the campus is essential for its future because of the increasingly complex needs of students. To pull the plug at this stage is simply unacceptable. We must pull out the stops to get this appalling decision reversed.”