Principals are abandoning a campaign to create a Bachelor of Vocational Studies degree in favour of lobbying for more direct funding of degree courses in colleges.
David Collins, former president of the Association of Colleges, drew up plans last year for low-cost, two-year degrees that would be accredited through a college-controlled National Skills University to help drive the expansion of higher education.
But under new president Pat Bacon, principal of St Helens College, the AoC is no longer pursuing the plans. Instead, it wants more of existing college HE provision to be funded directly through the Higher Education Funding Council for England, providing financial independence from universities.
With university budgets coming under increasing pressure as the funding body seeks pound;180 million of savings for 2010-11, colleges fear their provision funded through universities may be most at risk. Funding for foundation degrees has already been cut.
Ms Bacon said the partnerships with universities had benefits that members believed might be put at risk by going it alone with the proposed bachelors degree.
"I don't think we are going to pursue that particular qualification," she said. "It has been a bit of a bone of contention. But it's more about a rethink about the best way to deliver higher education.
"Students value all the benefits of being able to study locally while being able to be awarded a degree which has the value of university validation. And staff value being able to work with their peers in universities.
"The main agenda is pushing for direct funding from HEFCE. It's more a question of what members wanted to put their efforts into."
A few of the 269 colleges that offer higher education already receive funding directly from HEFCE. But more often it is passed on via their university partner, which then has control over the number of students recruited each year.
Ms Bacon said: "The reason we wish to review that is if a university decides it no longer wants a subject, there's no provision."
She said there were already instances of universities pulling out of their franchise arrangements, but colleges offered successful, employer-focused provision that deserved to be protected.
The decision to end their pursuit of a dedicated new bachelors degree is likely to be welcomed by universities that might have faced increasing competition in testing economic circumstances.
Universities also question whether colleges could produce more graduates for less money and whether they have the research and scholarship credentials to accredit a bachelors degree.
But attempts to win more direct funding are likely to meet resistance. A Universities UK spokesman said it would undermine the effectiveness of co- operation between higher and further education.
"Higher education institutions have a strong track record of working with further education colleges to develop effective and high- quality, indirectly funded provision," he said. "Indirect funding allows the development of collaborative and supportive arrangements between HEIs and FECs and often enables the establishment of partnerships across a range of FECs to the benefit of their region.
"It would not be in the interests of students or the regions for these partnerships to be undermined by changes to indirect funding."