A loophole in the law authorizing the student aid allowed the payments, The Daily Telegraph reported. John Denham, the universities secretary, said that the loophole was closed last week.
The government reported this week that 250 inmates since 1998 have received about 250,000 pounds ($500,000) in grants, while another 91 have received loans also totaling 250,000 pounds.
David Willetts, the shadow universities secretary for the Conservative Party, said that prisoners should be encouraged to further their education but not to take grants designed for others.
"This is the latest in a long line of Labor fiascos," he said. "Students struggling to make ends meet will rightly be outraged. Prisoners are getting taxpayers' money to help with food and rent, when they're already being fed and housed at the taxpayers' expense."