The council, the smallest in England and Wales, is spending Pounds 80, 000 a year providing an annual Pounds 2,200 allowance to parents with children in post-16 education.
The islands have one comprehensive school which caters for 100 children up to 16. Those wishing to do A-levels must travel the 30 miles to the mainland.
But the LEA has announced grants will cease after the 199798 financial year. Now the council and parents have joined forces to put pressure on the Department for Education and Employment to treat the islands as a special case. Barry Archer, council treasurer, said that while on paper the council was not losing out in government spending compared with other local authorities, no allowance was being made for the islands' unique situation.
"Children wanting to continue their education have to leave the islands, " he said.
He believes the area weighting factor in the Standard Spending Assessment, which the Government uses to calculate what councils can spend, should consider this factor.
Anita Bedford, chair of Action for Educational Rights, had been lobbying ministers in the hope that Education and Employment Secretary Gillian Shephard would offer a financial lifeline.
Mrs Bedford's daughter Georgina, 18, left the island to become a sixth-form boarder at Queen Elizabeth Community College in Crediton, Devon. Her son Simon, 15, is hoping to go to Cornwall College, Pool, in September.
She said: "Without support from the education authority my daughter would not be at college. She is fortunate, but many following her may not have the same opportunity.
"We want to make sure our children have the same access to education as in any other part of the country. Living on Scilly should not make a difference. "