YOUTH allowance reforms are in chaos after the Senate could not agree on a final package of measures yesterday.

A last minute deal between the Federal Government, Greens and independent Senator Nick Xenophon was torpedoed by the Coalition and Family First Senator Steve Fielding.

The result means student scholarship payments for next year have no parliamentary approval, leaving up to 150,000 students in danger of getting no scholarship money.

The Government is considering splitting the youth allowance legislation to separate out plans for new scholarship payments, which are tied to acceptance of youth allowance changes.

The old commonwealth scholarship scheme has already been scrapped by the parliament in anticipation of new arrangements.

But there is no guarantee that new legislation can be drafted and passed through both houses by the end of the week when federal parliament breaks for more than two months.

The stalemate has arisen over the Government's plan to toughen the work criterion for the independent rate of youth allowance to make students work for 30 hours a week for 18 months to qualify.

The savings, about $1.8 billion over four years, were to be re-directed to boosting other youth allowance payments and increasing uptake through an easing of income tests and a lowering of the age of independence from 25 to 22, and to help fund new start-up and relocation scholarships.  These changes are now all in limbo.

The tougher work criterion would have meant "gap year'' students, who previously could qualify by earning just under $20,000, would be forced to spend two years out of education to get the independent allowance.

The Government made a concession by extending the existing work criteria until July next year, but the opposition parties were not satisfied because future students would still suffer from the new rule.

They were also incensed that the Government introduced a new requirement for a minimum 90-minute travel time from home to university.

They wanted this scrapped as well as a return to the old work criterion and new audits to make sure students had to leave home to go to university and stayed away while in study.

Last week, the Government in the lower house rejected seven amendments supported by the coalition and Senator Fielding, while accepting two moved by the Greens.

These were a guaranteed review of the package and a provision for students to qualify for the independent youth allowance by working an average of 30 hours a week instead of a minimum of 30 hours a week. It also agreed to extend the current gap year concession to the start of 2011.

But the coalition and Senator Fielding refused to accept this deal when it came back to the Senate today, having the numbers for a split vote to ensure its defeat.

Nationals Senator Fiona Nash said the situation was "on the Government's head'' because it had chosen to link new scholarship money with youth allowance reforms.

But Education Minister Julia Gillard said the new deal would have dealt with any remaining concerns about present gap year students. “Instead they (the Coalition and Senator Fielding) have decided to play politics and in the process punish students and families, including those students on a gap year who now will not receive the scholarships.”

Greens Senator Sarah Hanson-Young also slammed the Coalition for what she said was "an appalling abrogation'' of responsibility towards students.

She said the deal with the Government, although imperfect, would have allowed scholarships for students and removed the retrospective nature of the original legislation that the Coalition had objected to in the first place.