Colleges in the West Country could set a precedent for England and Wales by taking over responsibility for discretionary grants from the local authority.

In a bid to stem the flow of student drop-outs, colleges hope they will gain the right to administer the awards themselves, allowing them to allocate funds to students most likely to stay the course.

Discussions are now under way between principals and Devon County Council education leaders over the plan, after revelations that the authority expects to recoup a fifth of the money it has set aside for next year’s discretionary awards as a result of drop-outs.

The proposal was greeted warily by the Association for Colleges. John Brennan, AFC policy development director, admitted many principals would welcome such a move nationally but predicted the administrative burden would prove excessive. He questioned whether cash could be fairly distributed among colleges to support students in most need.

Local authorities countrywide set their own policy on who gets discretionary awards - bursaries ranging from travel grants to fees and maintenance payments for students whose courses do not qualify them for mandatory grants. Most hacked back the cash available as budget pressures increased.

The transfer of the awards cash from councils to colleges is about to get under way in Scotland, where the policy has already sparked controversy over colleges’ readiness to cope with the administrative burden involved, and over how awards criteria should be set.

Guardino Rospigliosi, principal of Plymouth College, said it would be easier for colleges than the council to allocate awards to students with “the best possible return” in mind.

“We interview the students for the course and it is easier for us to form a perception of the level of commitment each will have.”

Colleges would be able to administer grants more quickly and cheaply than the cash-strapped council, he claimed. “I think if Devon were to pass the money it was going to spend to us it would go further.”

Frank Rosamond, East Devon College principal, said the LEA had been forced to decrease both the number and value of its awards, increasing student hardship. He said: “The system is beginning to collapse. If the colleges themselves administer the system to criteria laid down by the county then there would be more opportunity to control the position to consider particular circumstances. ”

Principals expect the county would allocate the budget on the basis of the spread of grants in previous years.

Tony Smith, Devon’s assistant chief education officer, said the council recognised that its discretionary awards budget was essentially a hardship fund along the lines of those already administered by colleges. He said: “The question is whether a change would get the best value for money from the public purse.”

Devon has a model of sorts for a handover of cash in a successful bursary scheme run with Bicton College of Agriculture. The college was given Pounds 50,000 last year to distribute to students not eligible for awards under LEA criteria.