College principals were warned this week that the agendas of the government and higher education have "never been more at odds" and that a division of the sector into teaching and research institutions was increasingly likely.
Roger Brown, vice-chair of the Standing College Of Principals and head of Southampton Institute, told the annual meeting of college heads in York that collaboration and merger were being promoted by a number of government agencies.
"Unless there is a dramatic improvement in student demand or some radical changes to our funding, some sector division of labour to improve our efficiency will be on the cards," he said.
Higher education colleges needed to justify their extra funding over further education colleges by promoting the link between research and scholarship, he added. "It would be very easy to slash our costs by removing research from the college sector," Dr Brown said.
Local groupings of institutions could be a way forward, as long as Russell Group universities did not dominate, he added.
"Such a system might provide a vehicle for the rationalisation of subject provision as well as the launch of new awards such as the foundation degree," he said.
Vaughan Grylls, director of the Kent Institute of Art and Design, said it would be "a disaster" if enforced mergers led to the dominance of huge multi-faculty institutions. "It is vital we keep the specialist colleges free," he said.