COLLEGE students who graduated last year will contribute £1.2 billion to Scotland's economy by 2020, according to academics.

The figures from a report by the Edinburgh-based David Hume Institute, which has a focus on public policy and the economy, amount to 1% of Scotland's gross domestic product (GDP) over the period.

The report states that this is more than the value of the output of the mechanical engineering or transport equipment sectors and almost on a par with the food processing industry.

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Commissioned by Scotland's Colleges, the report also highlights the relatively low levels of funding for college students compared to other education sectors.

Funding for college students is £5281 per head, compared to £12,381 for university students and £6562 for secondary pupils.

The findings come at a difficult time for the college sector, amid savage cuts to teaching budgets, a reduction in the number of students and thousands of staff losses.

Colleges have reported significant unmet demand, with thousands on waiting lists.

At the same time, the Scottish Government is embarking on a major restructuring, merging colleges along regional lines across the country.

John Henderson, Scotland's Colleges chief executive, said the report highlighted the significant contribution to economic recovery made by the sector.

He said: "This is a very helpful piece of research, which demonstrates just how much colleges contribute to the Scottish economy, with the boost to skills equating to 1% of GDP over an eight-year period."

"Colleges are shown to have strong and valued links with business, helping them adapt to emerging economic needs. The research importantly also shows that the value created by the sector is not just in the economic return, but is also felt in tackling inequalities."

Larry Flanagan, general secretary of the Educational Institute of Scotland (EIS), called for greater investment.

He said: "This report highlights just how important Scotland's further education colleges are to Scotland's economy and the country's economic recovery.

"These findings also further highlight the damaging impact of continuing cuts to further education funding and college provision across Scotland.

"We need an end to cuts and increased investment in our colleges to support economic recovery in Scotland."

Robin Parker, president of NUS Scotland, which represents students, said: "This shows the huge contribution colleges in Scotland make, not just in economic terms but also in terms of social justice and fair access to education.

"At a time of high levels of youth unemployment and unemployment in general, we need to invest in our colleges to boost our economy, reduce unemployment and increase social justice in Scotland.

"That's why we fully oppose the Scottish Government's plans to cut colleges by £34.6 million next year and why the Government must reverse these proposed cuts between now and the final Budget vote next year."

Liam McArthur, education spokesman for the Scottish Liberal Democrats, said: "While this report highlights the positive economic impact of college education upon our economy, it remains that the Scottish Government must work to maximize the social benefits of that investment."

A Scottish Government spokesman said: "The findings of the David Hume Institute clearly demonstrate the value that Scotland's college sector has to the Scottish economy.

"This is precisely why we are continuing to invest heavily in further education, the ultimate aim being to drive forward jobs and growth."