Colleges and sixth forms in England are to get more or less money according to their recruitment performance.
Sixth forms have been growing
An overall three-year increase of £130m for further education is not going to be across the board, the Learning and Skills Council (LSC) has said.
It plans action "to bear down on providers who are underperforming, while rewarding success".
A funding problem arose because, as a sector, colleges had been ahead of government recruitment targets.
Courses at risk
The LSC - which funds all post-16 learning outside universities - said that, for example, the number of 16-18 year olds studying full-time had increased by 3%.
School sixth forms had taken on 10,000 more students.
Apprenticeships had increased by 4% in 2002-03 and were ahead of target.
But this had led to colleges' complaining that they would have to axe courses for adults in order to stay within budget.
Now the Department for Education and Skills has found an extra £130m from within its overall budget.
In a letter to all college principals, the LSC has confirmed their allocations for 2004-05 "where colleges are expected to deliver at or above target" this year.
Colleges which are expected "significantly to overperform in priority areas" next year will get more money.
Those "expected to underperform" will get less.
The LSC's chief executive, Mark Haysom, said: "These changes will enable us to take action to deal with the concerns of the further education sector."
He added: "The additional investment made by the department shows the confidence that ministers have in the LSC and in the further education sector, as a result of their performance to date, and their promise for the future."
The Education Secretary, Charles Clarke, said: "The sector's success has created pressures on funding for this year."