Earlier in 2017, following a recommendation of the Seventh Pay Commission, the Defence Ministery capped the monthly expenditure on tuition and hostel charges at Rs 10000.
Sitharaman, however, decided to reconsider the decision.
The armed forces had also requested her to reconsider the defence ministry's decision to cap educational expenses of children of the soldiers killed in battles or anti-insurgency operations.
The scheme to provide financial aid to children of soldiers killed was announced in December 1971, days after the Indian victory in the war with Pakistan.
Children of the staff committee (CosC) comprising the Army, Navy and Airforce chiefs also wrote to the Defence ministry requesting it to remove the cap.
According to the previous scheme which was rolled out in 1972, tuition fee of children of the martyrs or those disabled in action were completely waived off and other professional educational institutions.
Approximately 250 students were affected in the current financial year following the government's decision to cap the assistance.
Replying to a question in the Rajya Sabha, Minister of State for Defence Subhash Bhamre last month had said that annual saving on account of putting the cap would be Rs 3.20 crore per annum. He sais highest amount drawn has been reported to be Rs 18.91 lakh per annum per student.