The new Arts Council discretionary award scheme for dance and drama students will be introduced in time for next year's intake.
Mark Fisher, the arts minister, said local authority discretionary grants not only short-changed talented students, but the theatre of the future.
He said Chris Smith, Secretary for Culture, Media and Sport, would be meeting the Education Secretary David Blunkett to seek a solution to a long-standing problem. "After the Dearing Report (on higher education funding) we need a substantive and fresh look."
Last month, The TES disclosed that the Government planned to abolish the exisiting grants. replacing them with an expanded system of access funds paid out by education funding quangos.
Dance and drama students have been at the mercy of local authorities under the discretionary awards scheme. The number of grants handed out has declined drastically over the past few years because of budget cuts.
Ed Wilson, artistic director of the National Youth Theatre, which has just won a Pounds 750,000 sponsorship deal over three years, said a place at a theatre school now depended on an ability to pay, not on an ability to act.