Shadow education secretary Andy Burnham offered a compromise of a cut to the education maintenance allowance (EMA) of about a fifth as the Coalition stood firm over its proposal to scrap the student grant.
Pressed by several MPs on the Government side, Mr Burnham said he would have been prepared to negotiate a "commensurate" cut to the pound;560 million EMA budget in line with the rest of public spending - which equates to 19 per cent in real terms over four years.
But in its amendment, the Government pledged to press on with its plans to create a new student support system, administered by schools and colleges but with only about one-tenth of the budget.
Prime minister David Cameron told the Commons that the economic situation made the scaling back of the EMA inevitable, as Gordon Brown had said it was originally funded by a reduction in debt.
"The former prime minister said: `We will fund this major advance in educational opportunity from savings we have made from our success in reducing unemployment and debt.' Is it any surprise that we will have to reduce this spending and find out how we can get better value for money?" Mr Cameron said.
But Mr Burnham added that education secretary Michael Gove had promised in the Commons to keep the EMA. "He told the House that he would keep it and he would build on it. Eighty per cent of recipients come from households with income below pound;21,000 a year.
"Students often come from large families and go without the basics because they know every penny they take from their parents means less for their brothers and sisters."
Nic Dakin, the former principal of John Leggott College in Scunthorpe who was elected the town's MP in May, revealed that scrapping the EMA could cost up to pound;34 million plus VAT in administration charges to outsourcing firm Capita.
In an answer to his parliamentary question, the Young People's Learning Agency (YPLA) said Capita's contract was due to run until 2013, with pound;34 million as the remaining value, although YPLA chief executive Peter Lauener said it would be subject to a "commercial review".