Stoke has undershot its student targets and must repay Pounds 8m to the Further Education Funding Council and make up to 200 staff redundant.

The college students union, which was due to hold an emergency meeting this week, is demanding that Mrs Shephard investigate how the college hit such a crisis. Their concerns echo those of staff who say the management failure will blight the entire FE sector unless ministers move to reassure the public.

“The situation is of grave concern to all students,” said a union spokesman. The college’s dire financial situation has forced a recovery package on the college which involves significant redundancies.

“Neither staff nor students are responsible for this crisis and should not have to pay the price,” he added. “This cannot be allowed to affect the quality of education at the college.”

They called on the director, Neil Preston, and the assistant director Helen Chandler, who are on sick leave but are allegedly running a pub in Wales, to resign.

The college is commissioning an independent review with the FEFC of what went wrong. Kevin Farrell, the corporation chair said: “Since incorporation all parts of FE have seen considerable growth, and previously we had achieved 20 per cent growth.

“What has happened is that growth has flattened out. It may be the case that for all sorts of reasons there was not sufficient early warning. In the review we will look at our student returns, see what happened, what went wrong, and what should have been done. We were over-funded and the FEFC has the right to recover that money,” said Mr Farrell.

The FEFC has demanded a financial recovery plan and will now look over the shoulder of anything the college does. Its view is that the management information system was grossly inadequate and projections of student numbers and therefore financial forecasts were based on inaccurate information.