Colleges are losing millions of pounds because the funding system discriminates against part-time students, research by London University Institute of Education shows.
Figures unveiled at the annual conference of the National Institute of Adult Continuing Education at Warwick University show that large colleges may be losing more than Pounds 1.5 million a year each.
One principal said he had to pay back Pounds 1.8m to the Further Education Funding Council because of disparities in sums paid for full-time and part-time students.
The research will reopen a row over colleges' efficiency in meeting the Government's efficiency targets of 5 per cent a year.
The Further Education Funding Council's tariff committee agreed the funding formula. But there is anxiety in many colleges that the balance between rewards for full-timers and part-timers is unfair.
Funding of courses is based on a complex formula of six cash bands, each covering an estimated range of hours for the programme. There are additional weightings within each band to meet extra staff and resource costs.
A-level and GCSE courses with intensive teaching and nearly full-time study attract more cash than access to higher education courses using distance-learning packs.
But the Institute of Education analysis of average costs and hours concludes that the whole banding system is distorted, discriminating against a wide range of part-time courses. Jay Derrick, a further education lecturer who carried out the research, said: "The FEFC tariff rewards colleges for recruiting students to 450-hour courses. But it discriminates too heavily against part-timers on many courses."
He has submitted his research results to the FEFC committee, chaired by Helena Kennedy QC, which is charged with widening participation in colleges. "It is now clear that part-time learners are the most numerous already in the system, and it is reasonable to assume that widening participation will be inhibited unless at the very least the tariff for full-time and part-time learning is equal."
His call was supported overwhelmingly by FE and adult college managers at the conference. Tony Uden, NIACE deputy director, said that while he thought the results of the Institute of Education research "exaggerated" the differences, there was clearly a serious problem with the formula.
"This is one way in which college managers are driven to favour full-time over part-time students," he said. Mr Uden called for the abolition of funding differences and the introduction of a "mode-free" system.
Under these arrangements, colleges would be paid for what they aimed to achieve not the number of hours taken to achieve it.
This is the goal of the FEFC and the current banding system is a stepping stone to it. It was feared that the impact on the funds of many colleges would be too dramatic if a wholly new system were introduced in one go.