Training companies fear delays to student payouts are triggering a collapse in applications for courses helping school-leavers back into education or work.
Applications for Entry to Employment courses have fallen by more than half at training providers across the country, according to the Association of Learning Providers.
Graham Hoyle, the association's chief executive, said the situation threatened the future of the courses and of the 60,000 students who will be affected by the change to payouts by the end of the year.
But the Learning and Skills Council has denied it is responsible for delays in paying poor students. It said payouts are being processed on time. It also suggested that some training providers may not be offering their students the support they needed to apply for the cash successfully.
Mr Hoyle said: "I'm picking up reports of 46, 50 and 70 per cent reductions in applications in a large number of providers across the country. Where are all these youngsters going to go?
"Providers pay the salaries of all their staff. Now they're talking about making staff redundant. You can't undo stuff like that."
Students who do sign up for the course are dropping out or only turning up sporadically, because they refused to train without receiving the money they were due, the ALP said.
Mr Hoyle said one provider has resorted to offering its own pound;2-a-day lunch vouchers to encourage students to stay. "From their own pocket, they are giving students luncheon vouchers each day so they can at least get something to eat. That's the kind of interest my members are taking in their trainees," he said.
"I'm upset that the LSC are suggesting providers are sitting back on their haunches doing nothing."
Entry to Employment courses offer 16 to 18-year-olds with few qualifications training in basic skills, vocational learning and personal and social development to help them find a job, become an apprentice or study. In the past, students have been given a pound;40-a-week grant in cash, paid through their training provider. But since April, the students have begun to receive the education maintenance allowance instead. Although it is only worth Pounds 30 a week, they also remain eligible for benefits.
It means a teenager living alone could receive pound;70 a week in total from EMA and income support, while those living with their parents could share pound;80 a week from EMA, child benefit and tax credits.
But under the new system, they must fill out forms to pass the means test.
It is this which has prompted the delays.
Trevor Fellowes, director of learner support for the LSC, said: "We need to examine what we can do with the system, but we need to examine what training providers can do as well. This is a system which has been found to work with young people with difficulties in schools, FE colleges and some training providers. There are good reasons to believe this is not a universal problem."
Training providers say this underestimates the problems they have in ensuring forms are completed properly. They say they are not allowed to check up on the progress of their students' applications for EMA money because of confidentiality rules.
And students will often depend on their parents providing the income information, although some may not be supportive, may not have a good relationship with their child or may give the wrong information.