Most local education authorities will pay travel grants to students only if they attend the college with a suitable course nearest to their homes, enquiries by The TES have revealed.
College principals said it makes a mockery of the idea of freedom of choice and that many students end up in fact on wholly unsuitable courses.
Specialist colleges also say that local education authorities are using much tougher criteria for issuing discretionary awards this year. And the LEAs themselves admit that even tighter conditions will be imposed next year.
The worsening picture was revealed in a telephone poll of about one in 10 LEAs and their surrounding colleges. Manchester offers no discretionary grants for specialist courses, Kent has virtually abolished them, Norfolk has sharply reduced the number of categories of student qualifying for any discretionary grants.
Suffolk said it offers no discretionary grants to students over 19 and Dorset has withdrawn all grants for postgraduate students taking "vocational" courses such as those leading to the Law Society exams.
The TES telephone enquiries coincided with the end of recent enrolment weeks. While colleges were unable to quantify the impact of the latest round of LEA cuts, most said students and colleges were feeling the pinch more than ever before.
The biggest impact on student choice appears to be from travel restrictions. Where two colleges have courses with similar names, the LEA often expects a student to go to the nearest one, regardless of the course content.
"It makes an absolute mockery of the idea of freedom of choice," said Paul Grundy, assistant principal at Aylesbury College, which specialises in catering studies and beauty therapy. "The issue of quality doesn't arise. It has no bearing on local authority decisions. We have found it difficult and frustrating, and it has certainly affected enrolment, at least in catering. "
The Department for Education and Employment insisted that total LEA spending on discretionary awards - estimated at around Pounds 230 million - has not declined noticeably but that there still appeared to be unacceptable regional variations.
A department spokesman said: "The DFEE is aware that there is evidence that the ability of students to get awards is dependent on where they live." The spokesman added: "Clearly this is a matter of concern for ministers."
But colleges said they were tired of tough-talking without action from ministers over the past three years. Colleges said that even if budgets were not cut levels of grant have not matched the demand from rising student numbers.
Ngaio Crequer, communications director for the Association for Colleges, said: "We are extremely concerned about what's happened in terms of the erosion of travel grants. It's clear that there needs to be a complete overhaul of the system. There's no justice or equity in the system that now prevails.
"The whole point of the awards originally was to ensure that students with places are able to get there. It is absurd to have a system to point students to colleges which may not be the best for them."
One LEA spokesman said most LEAs privately admit that the use of the word "discretion" has shifted in meaning from being the reason to make an award to the reason not to make it.