Colleges are being offered a multimillion-pound reprieve after the adult-education funding body acknowledged that thousands of learners could be lost because of fee increases.

Next year, up to 300,000 learners on benefits will lose their entitlement to free courses and face full-time fees of over pound;1,000 a year, prompting many colleges to predict that the recruitment of adult students would plummet.

Now the Skills Funding Agency (SFA) has said that, where numbers fall because of the changes, funding will be partially protected.

The reprieve will benefit colleges where more than a fifth of adult provision is affected by the restriction on free courses, which will be limited to students on jobseekers’ allowance and employment support allowance, and not benefits such as income support. If colleges recruit below target, they will be allowed to keep up to half of the funding.

An SFA source said the agency had initially been reluctant to publicise the offer widely, for fear that it would be seen as undermining the policy on fees.

A spokeswoman said: “The SFA is committed to implementing the policy direction set out by the Government. We recognise that some colleges and providers may need a little time to reshape their business to better focus on the new priorities, such as delivering apprenticeships and support for the unemployed.

“The offer is for one year, and the agency expects that providers will use this support to make the changes needed.”

Large numbers of college students on free courses tend to be on “inactive” benefits, rather than actively seeking work, because the rules on jobseekers’ allowance prevent them from studying more than 16 hours a week. This could, however, change under welfare reform.

Association of Colleges (AoC) assistant chief executive Julian Gravatt said: “Colleges had raised this as a concern: do you seriously want to take away funding from people on disability benefit and require us to charge them fees?”

A survey of 26 colleges by Nick Linford, director of funding consultancy Lsect, found that about a quarter of adult provision was affected by the fee changes and that colleges only expected a tiny minority to be able to pay the fees.

He said: “It’s apparent that the policy has been rushed. If they had done their homework they would have known this transitional funding was needed.”

In the worst-affected cases, colleges had over pound;5 million of funding at stake, representing in one example 58 per cent of its total income from adult learning.

The funding is also meant to support colleges hit by cuts to English for speakers of other languages (Esol). The AoC said female ethnic-minority students were affected the most, as almost three-quarters of nearly 100,000 students losing their free Esol classes were women.

The Department for Business, Innovation and Skills has yet to publish an impact assessment on the changes.

Original headline: SFA offers lifeline after free course withdrawal