The pound;44 million-a-year Assembly Learning Grant, for Welsh residents, was introduced in September and is expected to be claimed by around 50,000 people next year.

Up to pound;1,500 can be claimed but the Benefits Agency regards some of this money as income, even though Assembly officials had been assured by the Department of Work and Pensions (DWP) that this would not be the case.

The department is being asked to change its regulations to prevent the students from being penalised.

Mr Morgan said: “Assembly and DWP officials have been in regular contact. In addition, I and the minister for education Jane Davidson as well as the Secretary of State for Wales have spoken to DWP ministers. We are now working to resolve the issue to maximise financial support and clarify the benefit entitlement for the small number of eligible students whose benefits could be affected.”

The knock-on reduction of benefits is ringing alarm bells with Fforwm, the Welsh colleges’ association. Its chief executive, John Graystone said: “The introduction of the grant is welcome. Its availability provides real evidence of the Assembly’s commitment to inclusivity and widening participation in education in Wales.”

The problem was first noticed when the Assembly received reports that grant recipients were losing benefit. Initially, it was suspected that benefit offices had not been properly briefed but, to the dismay of officials in Cardiff, their Westminster colleagues confirmed that the removal of benefit had indeed been sanctioned and would continue to apply.

In England, Education Maintenance Allowance and access funding does not affect benefit because rules were changed after negotiation between the DWP and the Association of Colleges.

The AoC, however, is seeking clarification to ensure that extension of allowances to older learners will not fall foul of Benefit Agency rules.