Colleges have seen a rise in dropout rates and in leavers not going on to work or higher education, a report by Audit Scotland has found.
Students from deprived backgrounds and those with experience of the care system were more likely than others not to complete their courses in the last year.
The report found further education colleges are facing funding difficulties and a multi-million pound maintenance backlog is growing.
The report covers Scotland’s 27 FE colleges including three in Glasgow - City of Glasgow College, Clyde College and Kelvin College.
It found before the pandemic in 2019-20 the dropout rate for full-time students was 20.8%. The following year it had increased to 27.7%.
The numbers going on to work, training or further study fell to 84.4% in 2019-20 from 87.8% the year before.
Audit Scotland found funding for the college sector has fallen by 5%, down to £696m this year 2022-23.
It said in real terms the cut is worse taking into account inflation and rising costs.
Stephen Boyle, auditor general for Scotland, said: “The challenging financial situation facing colleges will make it difficult for the sector to balance the delivery of high-quality courses and Scottish Government priorities.
“Changes are needed to ensure the sector is financially sustainable in the long-term and more students successfully complete their courses.
“Colleges need support to plan for those changes, and the Scottish Government needs to work with the SFC (Scottish Funding Council) to put its plan into action at the earliest opportunity.”
It said the colleges responded well to the Covid-19 pandemic but that changes are needed to ensure the sector is financially sustainable in the long-term and more students graduate.
The dropout rates were higher for certain categories. Students from the 20% most deprived areas and students with a disability were more likely to not complete their course at 64.1% and 63.8% respectively.
Those who were care experienced were even more likely not to finish the course at 56.5%.
The report found in the last three years the funding for maintenance has a shortfall of £321m.
It said reform is needed to ensure colleges are sustainable.
It stated: “Glasgow Colleges’ Regional Board (GCRB) and its three assigned colleges are exploring other organisational options but are finding it difficult to reach agreement on a way forward. GCRB needs to address this with a sense of urgency.”
The Scottish Government said many students who dropped out during the pandemic had since returned.
Jamie Hepburn, minister for higher education, further education, youth employment and training, said: "The Scottish Government is investing nearly £2bn in Scotland’s colleges and universities in 2022/23. We will continue to work with the Scottish Funding Council, and our colleges, to ensure funding continues to enable them to deliver high-quality education and training.
"We know some students' learning was inevitably disrupted as a result of Covid-19.
"However, more than 90% of those who were unable to complete their studies in 2019-20 due to the pandemic have returned to college by 2021-22, according to the latest College Performance Indicators.
"Work continues to re-engage the remaining students across 2019-20 and 2020-21."