Twenty thousand university students and professors marched from Vienna University to the chancellor's office on Thursday against education cuts.
Smaller demonstrations took place in Salzburg and Graz.
Currently families with students aged 19 to 26 get roughly €150 (£130) a month from the state.
But under an unpopular austerity package foreseeing spending cuts of €1.6 billion (£1.4bn) for 2011, the Austrian government wants to slash the current amount of family allowances for students aged 19 to 26 and end payments for higher education at age 24.
The University of Vienna, which was once considered one of the finest universities in the world, has recently slipped down international rankings.
Vienna's Technical University vicar Peter Skalicky said: "Austrian establishments will keep slipping if no money is found."
Analysts estimated that under the new scheme, Austria's universities will have to struggle with a €300 million (£260m) loss each year.
Austrian National Union of Students chairman Sigrid Maurer said: "The Austrian ministry for education and science still thinks that restricting the access to higher education is the only solution to ensure our education system's quality, despite the fact that Austria has 17 per cent less students entering higher education institutions than the OECD average.
"Although everybody knows that our higher education institutions desperately need more money, the government is planning cuts in the budget. This will have great impact on staff and students, as on society as a whole," Ms Maurer observed.
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