As a result, hundreds of children and college students will lose their entitlement to free transport by September.
Large numbers of parents in the province have taken advantage of free transport to schools and colleges outside their own neighbourhood.
The total receiving the grants has increased by more than 14,000 since the open admissions policy was introduced in 1990, and is projected to rise by a further 8,000 over the next three years.
The province's Department of Education admitted that it has had to put the scheme into reverse because of the increased drain on its budget - costs have gone up from Pounds 23 million to Pounds 39 million a year.
The department also forecasts that if the present arrangements remain, the total cost of providing transport will have almost doubled by early in the next decade.
The five area education boards are to meet in the next few weeks to assess the potential impact of the decision, which is likely to hit rural areas hardest.
The department has asked for their opinions on a proposal that the assistance should be restricted to pupils and students who have been unable to find places at schools and colleges within the statutory three-mile walking distance.
Education minister Michael Ancram said immediate steps were needed to cut the costs of transport because of the priority needs of the classrooms.
"Concerns have been expressed to me on a number of occasions about the constraints the escalating costs of home to school transport are imposing on classroom and other expenditure," he said.
Tom McKee, regional official of the National Association of Schoolmasters Union of Women Teachers, the largest teacher union in Ulster, said that the move showed the folly of the Government's original policy.
"Parents were able to obtain free transport for their children just by choosing a school more than three miles from their home," he said.
"But the real dishonesty of the Government was that it told the area boards to implement open enrolment but never gave them the resources to do it."