The Trump administration says most international students and any students who entered the United States illegally will be barred from receiving emergency education grants.
Congress approved the grants as part of a $2.2 trillion coronavirus rescue package.
New guidelines issued by the Education Department on Tuesday say that only students who qualify for other federal financial aid can receive the money.
College leaders and student advocates have blasted the change, saying Education Secretary Betsy DeVos is imposing new limits that were not included in the rescue package.
But Education Department officials say the guidance is in line with other federal rules and the bill that created the grants.