The criticism follows revelations that thousands of students could lose their education grants when their parents cash in on the Government's SSIA savings scheme.
USI deputy president Noel Hogan said the move, which is expected to result in untold grant refusals, discriminated against ordinary working families who were trying to save.
"On the one hand they encouraged people to save by bringing in the SSIAs, so how can they turn around now and throw a spanner in the works by including it in assessments? They are punishing people for trying to save," he said.
Far from being penalised if their parents were trying to save, Mr Hogan said anyone seeking to better themselves by going to college should get at least the same as those on the dole.
But the Department of Education has decided that the SSIA scheme payments, due in 2006 and 2007, will be considered family income in official assessments for grants, putting many lower and middle income families over the threshold.
Consequently, students are likely to have grants cut or withdrawn when their parents' income is tallied up to include SSIA savings.
Figures released by the Department of Finance show that almost 90% of people who chose to invest in the SSIA scheme fall into the middle to lower income bracket from which the vast majority of third level grant applications come.
Those least likely to require grant assistance to help cover the cost of third level fees are also the smallest category of SSIA holders, according to research from earlier this year.
Among the upper middle class, only six in every ten were investing in SSIAs, with just half of those investing the maximum amount.
The Department of Education will include any SSIA income as part of overall income by dividing the final savings amount by five and adding it on to grant applications.
Estimates show that close to half of those availing of the SSIA scheme are saving the full allowable monthly amount of 254 a month.
Under the new assessment rules, families with two full-value SSIAs would have an additional 8,000 included as part of their annual income, making many of them ineligible for grant assistance.
Education Minister Noel Dempsey who last month controversially backed away from plans to reintroduce third level fees defended the decision, saying all income had to be covered when grants were being decided upon.
Minister Dempsey said all investments must be declared in assessments, including deposit accounts, savings certificates, life insurance bonds and any other financial instruments where profit is accumulated for later payout.