Scotland's colleges face "considerable financial pressures" in the years ahead, according to a report by the public spending watchdog.
Audit Scotland found that the overall financial standing of the college sector was financially sound in 2010/11, though most colleges operate to relatively tight margins.
However as part of overall public sector spending reductions, Scottish Government revenue grant support to colleges is likely to fall from £545 million in 2011/12 to £471 million in 2014/15, a 24% reduction in real terms.
The report found that the sector may also face pressure from a range of increasing costs, while planned structural reforms of the college sector may create cost pressures.
It stated: "Colleges face considerable financial pressures over the next few years, that will include planned reductions in Scottish Government funding."
Scottish ministers have announced structural reforms of the sector, including the creation of 13 college regions.
These are expected to result in the number of colleges in Scotland falling from 37 to no more than 23.
Audit Scotland called on the Scottish Government to provide a clear assessment of the expected benefits and costs of regionalisation.
Caroline Gardner, Auditor General for Scotland, said: "The overall financial standing of Scotland's colleges was sound in 2010/11.
"But most colleges operate to tight margins and there are major challenges ahead. The Scottish Government contributes around three-quarters of colleges' combined incomes but this funding is set to reduce by around a quarter over the next three years."
