Eight schemes have been given the go-ahead but another 144 around England have been put on hold indefinitely.
But colleges claimed they were told the money would come through and spent millions on starting work, according to the BBC.
The total projected overspend across the country exceeds ВЈ3bn.
The president of the Association of Colleges, David Collins said: "It beggars belief. I don't think there can be any reason other than mismanagement. It's an incredible situation to be in."
He called for the Treasury to intervene, arguing that continuing the work to colleges would be a far better use of public money than covering the banks' toxic debts.
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The BBC said that the LSC had not provided a response, but had previously portrayed the college rebuilding scheme as being a victim of its own success.
A spokeswoman from the Department for Innovation, Universities and Skills said the LSC had informed them that it had given 79 colleges the first stage of approval in principle and government funding of nearly ВЈ2.7bn would be needed for them to proceed.
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