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Similar thing at my college where some students get £500 bonuses if they put effort into their course and hand their coursework in on time. Again, I believe this is not preparing them for real life and independance. As for the other students, what incentive do they have? None at all, but, to me it's a part of growing up, about learning to be independant and to be self motivated. And of course, it's totally unfair to those who have no such incentive.
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If you are referring to the EMA, I know quite a few people who this helps, it is not a incentive it is meant to remove any financial limitations to people who require it. College is sometime expensive with lunch and bus fares as well as the fact there have decided to forgo earning money and instead improve their education