Poor youngsters are dropping out of college because the government's replacement for the Educational Maintenance Allowance (EMA) is "inadequate", a report says.
The Barnardo's report says lower levels of money and a lack of access to it are leaving some of England's poorest students with no choice.
Young people are skipping meals in order to pay their fares to college, it adds.
The government said EMA was wasteful.
Education Secretary Michael Gove announced he was axing the £560m a year scheme soon after his party came to power in 2010. He said he wanted support for poor pupils more targeted.
EMA provided students from lower-income families, with incomes under about £30,000, with weekly payments of up to £30 a week. All students had to do to get it was to attend the courses they were studying.
The government's £180m replacement Bursary Fund is only targeted at young people who are in care, leaving care or on income support, with the most part being pumped into a discretionary fund run by colleges.
But Barnardo's in-depth study, looking at 51 disadvantaged youngsters and the colleges they attend, suggests that cuts to funding and confused targeting is leaving many vulnerable young people without enough means to carry on learning.
The report says: "Without improvements, many of the young people that the Bursary Fund should support will be held back because they say they cannot afford to continue."
It adds: "As previous research has shown, poor and disadvantaged young people often need encouragement to continue in education and training.
"However, the findings of this research indicate that in many cases the new funding system fails to address their needs for financial support, potentially discouraging them from participation in education and training."
The charity's chief executive, Anne Marie Carrie, said it was a disgrace that some students were now being forced to skip meals in order to afford the bus to college.
She added: "The Bursary Fund is an unfair and totally inadequate replacement for the Education Maintenance Allowance.
"The government has a moral duty to urgently invest in adequate help for 16- to 19-year-olds from poorer backgrounds to stay the course and complete their education or training.
"The alternative is to risk losing a whole generation to the trap of long-term unemployment because they don't have any qualifications."
She called for immediate improvements to the way the Bursary Fund was targeted and administered. These include increasing payments to £30 a week, and widening funding to all young people who have received free school meals.
But a Department for Education spokesman said: "The Education Maintenance Allowance (EMA) was wasteful and poorly targeted. Some 45% of all 16-19 year olds received it, including many private school pupils.
"We are taking a much more targeted approach by providing £180m a year to the 16- to 19-year-olds who most need help to continue their studies."
Toni Pearce of the National Union of Students said the report was a damning indictment of the decision to scrap EMA, and the botched attempt to replace it.
"The government flew in the face of expert opinion and a mass of evidence, all of which said the EMA should stay, and then rushed to replace it without any proper planning and woefully inadequate funding.
"Ministers must admit that they got this badly wrong and make the necessary changes before the futures of a generation fall victim to this disastrous policy decision."
Labour's shadow minister for young people, Karen Buck, said: "This report highlights the lack of support for young people that want to stay on in education until 18 or 19."
She added that the government's replacement was a 60% cut on what was available.
"While colleges are working hard to address the funding gap, half of them have seen a drop in the number of students applying for courses," she added.