Timaru's Aoraki Polytechnic is considering joining forces with Christchurch Polytechnic.
Aoraki Council chair Janie Annear said the polytechnic had been struggling in recent years, with a $3 million deficit last year and a similar result expected this year.
"Aoraki is one of the smallest polytechnics in New Zealand and we have been struggling against a number of factors," she said.
These included high employment in the region, fewer people studying, greater competition and lower numbers of school leavers.
"The polytechnic has not broken even on its core business - local direct delivery - for many years," Ms Annear said.
"We are in the difficult position of wanting to be able to stand alone, but we cannot keep eroding our reserves without the certainty that we can become sustainable in the near future."
It would therefore explore combining with the Christchurch Polytechnic and Institute of Technology, and expected that work to take six months.
Ms Annear said the polytechnic wanted to make sure any changes retained its $30 million reserves and its campuses, which covered South Canterbury and North Otago.