A college faces a review of its future after being in debt for more than 10 years.

An “options appraisal” will decide if Cricklade college in Andover, Hampshire, can be financially viable in its own right.

The Learning and Skills Council, which funds colleges in England, said closure or merger cannot be ruled out.

It has also been announced that June Jarrett, Cricklade’s principal, is to leave in May after less than 18 months in charge. The LSC insisted that her departure and the options appraisal are “completely unconnected”.

A statement said the college is “facing considerable challenges due to the legacy of well reported financial difficulties dating back to the 1990s”.

Parliamentary investigations were launched into the financial activities of the college between 1994 and 1999.

An investigation by PricewaterhouseCoopers found that the college had not been providing the services being paid for by the European Social Fund, and that repayment could cost it pound;1.7 million.

The college also became mired in two expensive legal actions which further drained resources. Two lecturers who were made redundant fought a three-year battle over unfair dismissal. The college did not recover its costs.

After failing its inspection in 1999, the college appeared to be making a slow recovery under the leadership of former principal Tom Johnson, and then Ms Jarrett.

On re-inspection in 2002, Ofsted said: “Managers have succeeded in raising the morale of staff and are enhancing the reputation of the college. It has made reasonable progress towards achieving the objectives in its financial recovery plan.”

When Ms Jarrett took the helm in December 2004, she became one of only seven ethnic-minority college principals in the country. She joined Cricklade as vice-principal from her previous job in London. Achievement rates continued to rise but student numbers did not reach the target for this academic year, leaving a funding shortfall of about pound;450,000.

Ms Jarrett has been appointed head of a sixth-form centre to be opened in north London in September 2007 (see report below). No decision will be taken on advertising for her replacement until the appraisal is complete.

The recommendations will be made available in May and will then be subject to consultation locally.

Ms Jarrett said: “Andover is a growing town. It has to have FE provision.

What is being sought is a sustainable solution that is right for the area and will provide high-quality FE provision for the town.”

Bob Houghton, chair of governors, said: “We shall be sorry to lose June, who has achieved so much for Cricklade and Andover in just under two years.

She has put in place a strong team of dedicated professionals who will carry the college forward to great things. We wish her every success in her new college. I am very keen to continue working in partnership with the LSC and other stakeholders to ensure a successful outcome to the options appraisal.”

There have been more than 70 college mergers since 1993, when they became independent of local education authorities. These mergers and a few closures have cut the number of colleges in the FE sector from 465 to 386.

There have been four mergers in Sussex alone in the past four years. Merger has often been used where colleges are financially weak.