The government may have underestimated the number of students who will take out postgraduate loans, according to some in the sector, while questions remain over the policy¡¯s funding.

The loans of up to ?10,000 for students under the age of 30 taking taught master¡¯s degrees, announced in George Osborne¡¯s Autumn Statement on 3 December, will also be open to European Union students ¨C another factor that could add to demand.

The Institute for Fiscal Studies has also suggested that including EU students could increase the cost of loan write-offs.

At private providers, only students at institutions with degree-awarding powers ¨C numbering seven at present ¨C would be able to access postgraduate loans.

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The postgraduate loans policy, which the Treasury says addresses social mobility and the need for high-skilled labour, has been broadly welcomed by the sector.

The Autumn Statement document gives a ?1.5 billion figure for total loan outlay over the first four years of the scheme, which will be introduced in 2016-17.

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Some believe the government is planning to pay for the postgraduate loans using money that had been allocated to fund the abolition of undergraduate number controls. The number of extra undergraduates projected to take out loans has been revised downwards from an initial 60,000 to 45,000 a year.

However, the Treasury describes the postgraduate investment as new money. An Autumn Statement policy costing document estimates that 47,000 students will take out postgraduate loans in the first year of the scheme, falling to about 40,000 for the three years after.

The Treasury predicts that 10,000 of those 40,000 students will be those who would not otherwise have entered postgraduate study without the loans scheme.

Mick Fuller, chair of the UK Council for Graduate Education, said there was a question over whether the money allocated by the Treasury ¡°is enough to match demand across the country¡±. He warned that if not, the government may still consider a ¡°post hoc¡± restriction limiting the loans to science, technology, maths and engineering, and possibly business, subjects.

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Nick Hillman, director of the Higher Education Policy Institute, who welcomed the scheme generally, said he was ¡°surprised that the additionality is only 10,000¡±, particularly ¡°given that EU students are entitled to loans as well¡±.

But he added that the repayment terms ¡°may limit demand to a certain extent¡±.

The CentreForum thinktank had recommended that the government designate loans as being for maintenance, which would make EU students ineligible.

The IFS said in a 9 December briefing note that while the write-off rate on postgraduate loans could be between 0 and 3 per cent for domestic students, it would be as high as 12.6 per cent if EU students failed to repay.

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Mr Hillman said that by designating the ?10,000 loan as being for fees, the government had created the possibility of fee inflation, as it ¡°gives a bit more of an incentive to institutions to set their prices according to what the available loan is¡±.

Concerns have also been raised about the fact that the postgraduate loans are to be repaid ¡°concurrently¡± with undergraduate loans, at the same rate of 9 per cent on earnings above ?21,000, leading the IFS to warn last week that those taking out postgraduate loans could in effect face a marginal tax rate of 50 per cent once income tax and National Insurance were included.

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john.morgan@tesglobal.com