Enrolment figures for this year show a drop of 14 per cent in the number of students with Level One qualifications at members of the Association of Colleges (AoC).
The AoC is concerned that students not entering further education are likely to slip into the NEETs (Not in Education, Employment or Training) category.
The number of the 16 to 24 year olds in the NEETs category reached over one million this month, almost one in five. There are concerns that young people leaving school and not entering education will further swell the ranks of the young jobless.
"Most schools do not provide the types of courses they need, and work-based learning routes are also likely to be closed to them," said AoC chief executive Martin Doel.
Doel went on to suggest some possible causes for the falling number of Level One college learners.
"Local authority transport cuts, the loss of the Connexions service and the Education Maintenance Allowance, together with worries about higher education costs and the general economic situation, may play a part in young people's decisions but there does need to be more research on causes and effects," he explained.
He added: "In the meantime, we would want to continue our dialogue with Government about how to mitigate the impact of any unintended consequences of policy and funding changes on students and their families."
Rob Wye, chief executive of the Learning and Skills Improvement Service (LSIS), warned against young people not entering education in the current economic climate.
"The current economic situation is a reason to invest in learning not to drop out," said Wye.
"Learning is the key to unlocking young people's futures. It is essential that they continue to invest in gaining the skills, qualifications and attributes that employers want, or that may enable them to become the young entrepreneurs of the future."