Kiribati's Permanent Secretary for Education, Dr Meita Beiabure, says the dispute over scholarships is a misunderstanding of entry policy.
Earlier this year 18 students were selected for government scholarships to study for degrees at the University of the South Pacific in Fiji.
Although none of the 18 was eligible, they will stay in Fiji to do foundation courses.
At the same time, none of the Kiribati students who passed the entry test was chosen to go to Fiji.
Dr Beiabure says the department believed the USP would again allow for nexceptions to the entry criteria for Kiribati students.
He says he sees no problem with the scholarship selection process.
"No I don't see that there is any nepotism in the selection process. It's just a misunderstanding and misinterpretation of USP policy."
Dr Beiabure says an investigation has been called into the scholarship selection process.
The Kiribati Parents Teachers Association has written a petition to the government, demanding the sacking of those involved in the scholarship bungle.
