After talks with the Learning and Skills Council, England's largest offender learning provider agreed a deal which it believes will make the contracts financially viable, addressing its complaint of costs which could not have been anticipated.
But the deal means 250 part- time and full-time redundancies in prison education will be made along with a further 50 job losses elsewhere in the college, prompting fears of a decline in quality.
The cuts represent 7 per cent of the college's 3,500-strong prison education team and 1.6 per cent of its 3,000 staff in general further education.
Sally Hunt, general secretary of the University and College Union, said: "Prison education is vital in stopping re-offending and these savage cuts will be a hammer blow to offender learning throughout the country. The result of The Manchester College's actions will be fewer rehabilitation opportunities for offenders and another 300 staff on the dole queue."
Dave Prentice, general secretary of Unison, said: "Cutting hundreds of staff will hit prison learning hard and will most likely result in re- offending."
The deal for the college to continue with the two threatened prison education contracts, in the North East and South East, was drawn up after what the college called a "significant piece of external consultancy".
A spokeswoman for the college said: "This has not been an easy decision for us to make, but if we don't take control of this year's budget, future years will be extremely difficult and this could result in a far higher number of redundancies.
"All colleges are under the same financial pressure, but those colleges that do not take action now will not be able to withstand the inevitable funding cuts and will be destabilised. We cannot allow that to happen within The Manchester College."