A private Birmingham college had to make four members of staff redundant and lost thousands of pounds in fees after an administrative mixup meant it was labelled as 'bogus' by the Department for Education and Skills.
Overseas students who applied to Aspire Training, which is based in Hockley, were refused extensions on their visas because the Government told them it did not recognise the institution.
The college, which offers classes for adults in first aid and food hygiene among other subjects, said it had not been told that, from January, it had to register with the DfES.
The Government department created a register of institutions as part of a crackdown on bogus colleges which were being used as a front for illegal immigration.
More than 250 institutions were closed last year when immigration investigators from the Home Office discovered they were being used for visa scams.
Elaine Powell, who runs Aspire Training, registered her college as soon as she found out, but said the blunder meant she had to lay off four members of staff and lost thousands of pounds from students who deserted courses believing them to be part of a scam.
She said she had seen the number of students drop from 270 to 70 and had not drawn a salary for six months.
She said: " The DfES retracted the allegation that Aspire Training was bogus and said that we were a genuine institution, but by then it was too late.
"We get no Government funding. We rely on income from overseas students and this has damaged our reputation severely.
" Students whose visa applications were rejected have threatened me because they thought I had conned them.
"Aspire Training appreciates the need to ensure that bogus colleges are not used as a method for undesirable individuals to gain access to the country.
" We have obtained approval from the Immigration and Nationality Department of the Home Office as a recognised provider of training for the purposes of visa requirements."
Ms Powell, who is a qualified teacher, said she was considering taking action against the DfES.
She said: "Aspire is considering whether to make representations to the DfES as a result of the problems that have been caused to the company and to potential students."
A spokesman from the DfES said: "The register of education and training providers in the UK is a list of genuine education and training providers in England, Wales and Scotland. The register is not mandatory and not intended to quality-assure the learning provider nor in any way to accredit them.
"The register received considerable coverage in the national and specialised press in June last year and ultimately it is the responsibility of an individual learning provider to be aware of current guidance."