Birmingham Crown Court heard that the group stood to gain more than pound;1.2 million from the city's Bournville College, by claiming for franchised community-based classes, some of which never took place.
But they only received an advance of pound;50,200 from the college before the fraud was exposed.
Mohammed Aslam, 67, chairman of the Pakistani Muslim Community Care Association was said by the judge to have played a key role. He helped to negotiate the deal with the college in 1994.
Aslam's association lodged claims for a total of 120 classes, running for 15 hours a week over a 32-week period, which would have netted more than pound;1m in funding over a year.
But some classes were non-existent and lists of students provided to the college included the names of children too young to take part.
Before a routine inspection by the college, one of the defendants arranged for extra "students" and a lackboard to be brought into the room. These were removed once the inspector had gone.
Bournville stopped the payments and called in the police in February 1995 after discovering that nine out of 10 classes - which were supposed to be held in homes, mosques and schools - were not actually being taught.
The four men and one woman, - Aslam and co-defendants Mohammed Tazeem, 47, Javid Aziz, 34, Naveed Narmah, 50 and Sabia Kauser, 26, all from Birmingham - admitted conspiracy to defraud, and were sentenced to between six months and two years, suspended for two years.
Judge Alistair McCreath told them: "This was a fraud on a very substantial scale which would ... have caused a huge loss to Bournville College." But he added: "I accept that in the early stages it was the intention of those involved in the scheme to confer some real benefit on the Asian community." He also criticised the college, saying it had been "very lax" in its procedures. "There appeared to be a few, if any, spot-checks," he said.