Central Sussex College is in talks with Chichester College about the possibility of a merger.
Discussions are in the early stages but the idea has been welcomed by leaders of both colleges.
In a joint statement, Sarah Wright, of Central Sussex, and Shelagh Legrave, of Chichester, said: "We believe that a merger between our colleges will create opportunities around financial sustainability and ensure a diverse and employer led curriculum to meet local business and community needs.
“We remain committed to ensuring quality teaching and learning and believe that collaboration provides the opportunity to grow income, share costs and work in broader geographical areas.”
The merger was born of the government's Area-based Review of further education and sixth-form colleges in Sussex, which was published today (November 29).
The report recommended Chichester remain as a stand-alone college "at this point" but said it should "explore the potential for partnership" with another college or colleges.
Regarding Central Sussex, it said: "The preferred option for Central Sussex College should be a merger with a strong college, with a suitable partner identified as soon as possible."
The report also said the college's financial problems should be "addressed by the government by the end of August 2016" - which has not yet happened.
For discussions to proceed, a comprehensive due diligence process will take place which will include a full and detailed consultation with all stakeholders.
Staff at both colleges were informed about the proposed merger in briefings on Monday (November 28).
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