In a letter from the Warrnambool Schools Network, the principals said the decision to take back more than $155,000 was "morally wrong" because the money was not the region's or the network's, but that of its constituent schools.

About $120,000 of the money had been funds for psychologist services paid for by schools but not recouped by them.

In its letter to the Education Department's Barwon South West regional office, the schools network said the money had been earmarked by principals to fund a Jigsaw program in Warrnambool schools that would seek to re-engage youths at risk of dropping out of school.

A spokesman for Education Minister Bronwyn Pike said the department's regional office had claimed the money so it could be reinvested in the Student Support Services within the Barwon-South West region, which extends from Geelong to the SA border.

The spokesman said the money had been "sitting stagnant in a bank account".

He said the regional office had claimed the money under a new policy where regional offices, rather school networks, would determine the allocation of funding for Student Support Services.

However, the Warrnambool Schools Network has argued the new funding policy should not have meant it had to return money from the previous funding arrangement.

"This is the first process that we can recall that is retrospective in nature," the network said in its letter.

"The premise that all money held by networks is SSSO (Student Support Services Officers') money is inaccurate, as under the previous funding scheme ... there was a stream of funds for network use that was not specifically targeted for SSSO's.

"The principals of the Warrnambool network believe that a fairer approach would be to leave network balances as per 31/12/2009. This does not impinge on the ability to implement the new funding formula for 2010."

The principals said their concern for the fate of the $120,000 followed disappointment at having to return another $35,479 to the regional office.

They received support this week from Member for South West Coast Denis Napthine who called in Parliament for Ms Pike to return the money.