The Derby College for Deaf People is one of the few specialist colleges for deaf people in the country, and is set to close in July.
The tiny college - with between 70 and 80 students - had its income reduced by one third by the Derbyshire Learning and Skills Council, which banned the recruitment of new learners after a poor inspection report.
But managers say they were not allowed to implement a post-inspection plan, had no targets to achieve, and no support. This is in direct contradiction to LSC policy, which is to ensure a college in trouble recovers as quickly as possible with minimal impact on students.
Richard Linley, assessment manager responsible for new students, said:
"When they imposed the freeze and then refused to lift it, it was like saying to somebody 'we are going to stop a third of your customers coming through the door. Can you carry on with the business.' Obviously we could not."
The college was inspected by Ofsted and the Adult Learning Inspectorate last March and was judged unsatisfactory. Leadership was weak and there were poor financial controls.
Last summer the national LSC imposed the funding freeze. A re-inspection took place and the college had made "reasonable progress" in eight areas, but made only "limited progress" in two.
Managers expected the freeze to be lifted. But the final judgment was downgraded to one of overall limited progress.
Peter Farrar, external services director, said: "The LSC pulled the rug from under our feet. We were devastated. We never even had the opportunity to go into specialmeasures."
With the withdrawal of funding the governors decided their only option was closure.
David Hughes, LSC regional director, said: "The college has not been able to adequately address the inspection findings and we don't believe new learners will get the support and care they deserve."