Chancellor George Osborne’s extension of the FE loans system from those aged 24 and above to the 19 to 23 age group was a source of uncertainty for government officials — but Mike Farmer explains how he sees it working out.

What do we already know about FE loans? The key message is that the budget is currently grossly (62 per cent) underspent.

I calculate that the scheme could take 125,000 more students receiving loans (at £2,000 a time) without exceeding the £400m allocated to it.

It’s unsurprising that the Chancellor has brought 19 to 23-year-olds into scope. My guess is this will happen next academic year

The scheme is tightly controlled by the Skills Funding Agency (SFA) which caps the fees for every single level three and four qualification. So plenty of scope to expand and modify the scheme without Chancellor George Osborne getting worried.

So where next? It’s unsurprising that the Chancellor has brought 19 to 23-year-olds into scope. My guess is this will happen next academic year. The funds are there and all the systems are in place. I’m also fairly optimistic about the impact on student participation.

Based on the November Statistical First Release I calculate that there are 65,000 to 70,000 19 to 23s (other than apprentices) taking level three and four qualifications. The evidence suggests that younger students are less loan-averse than older students, so a fairly high proportion of 19 to 23s are likely to take out loans.

There are bigger uncertainties around the proposed extension to higher levels. How many level five and six students there will be is much more speculative, and depends on a number of factors, including the speed with which the new National Colleges and Institutes of Technology get off the ground, and the qualifications that they (or awarding bodies) can develop.

There are questions too about where these additional students will come from. Clearly there will be competition with universities and other conventional higher education providers.

That is probably the reason for introducing FE maintenance loans for students of higher level skills, and a planned increase in the FE loans budget.

A gradual integration of the FE and higher education loans schemes looks on the cards and this can only be for the best. The FE scheme has suffered from inadequate publicity, and having a single scheme will help in this respect.

Also needed is a relaxation of the iron grip that the SFA has on FE loans. For example, although this would not be popular, a lifting of fees cap which it currently sets.

Since the Department for Business, Innovation and Skills has to cut 17 per cent of its administration costs, there are questions about whether the SFA will have the capacity to exercise its current control, or even whether it will survive to do it.