More students from poorer families in England are to receive full grants for university living costs.
John Denham is in charge of universities, innovation and science
Students whose families earn less than £25,000 a year will get a full grant - up from the present level of £18,000.
Those in families earning up to £60,000 a year will now get some form of maintenance grant.
The Secretary of State for Innovations, Universities and Skills, John Denham, said the changes meant a "major increase in support to students".
Students in England and Northern Ireland have been liable for tuition fees of £3,000 a year since last September.
The fees are not paid up front by the students, but are covered by a student loan which is paid back once a graduate's earnings reach £15,000 a year.
Although tuition fees themselves are not directly affected by the announcement, Mr Denham also said students starting in 2008 would be entitled to a holiday from their repayments of up to five years - once they graduated.
He said the changes would mean that the number of students eligible for a full grant would rise from the present level of 29% to one third.
And two thirds of all students would be entitled to some kind of maintenance grant, up from the present level of half.
"We are wasting the talents of too many young people for whom university study should be a realistic ambition, not out of reach," he said.
Full maintenance grant threshold up to £25,000 family income
Partial grants threshold up to £60,000 family income
£400m per year cost to government
"Hard-working families on modest incomes have concerns about the affordability of university study.
"We need to be willing to change," he said.
Mr Denham said the changes to grants would cost an extra £400m a year and would mean that about 50,000 more students every year would benefit from full maintenance grants worth over £2,800.
Tony Blair's government faced a back-bench rebellion when it brought in variable tuition fees of up to £3,000 a year. They had previously been pegged at about £1,000 a year.
MPs were concerned that students from low-income families would be deterred from going to university because they feared getting into debt.
The government has made a commitment to get half of young people into higher education by 2010.
The changes have been welcomed by students and university leaders.
Professor Drummond Bone, president of Universities UK, said: "This is excellent news - for students, for graduates, and for the whole higher education sector.
"This extra money will tackle head-on any perception that financial barriers make it impossible to go into higher education.
Students in England pay tuition fees after graduation
"Raising the threshold will mean many more students will be eligible for non-repayable grants - and will go some way to ensuring that all students with the ability to succeed in higher education are given the opportunity, and the means, to do so."
National Union of Students President Gemma Tumelty said she was pleased ministers had listened to her concerns about student hardship.
She added: "It is absolutely right that very poor students and students from modest and middle income families feel confident in adequate financial support from the state and we are encouraged that thousands more students will be eligible for support and that thousands who struggle on the current package will be given access to a funding boost."
Shadow Innovation, Universities and Skills Secretary David Willetts said: "We need to widen access to universities. The government endlessly talks about this but after 10 years in office they have achieved very little.
"The proposals are welcome, but they don't match the scale of the challenge."
The fees situation varies across the UK. The Scottish government recently announced plans to scrap the £2,000 fee paid by students after graduation. Draft legislation is expected in the autumn, with the aim of the move coming into force by April.
The Assembly in Cardiff has responsibility for education in Wales. Welsh universities can charge £3,000, but students normally live in Wales will pay only £1,200 and the rest will come from the Assembly government.
Students from other parts of the UK will pay the full £3,000. Welsh students going to colleges outside Wales usually pay the fee charged by the college in particular.
In Northern Ireland a review of university variable tuition fees has already been announced and will take place in 2008-9.
However, the Department of Employment and Learning said it would need to see the full details of the proposals on changes to the grants system announced in England.