With Western economies mired in recession, demand for university places is soaring as students strive to ride out the crisis and gain a qualification at the same time.

In the UK, opportunities to escape from the shrinking job market via higher education have been limited by the Government's restriction on additional student numbers for the next two years, as outlined in its recent grant letter, a move prompted by its miscalculation of the student support bill.

But if this move will leave prospective students disappointed, they are not alone - in Australia, up to 29,000 applicants missed out on a university place this year.

The figure has raised doubts about the sector's ability to absorb the sharp increase in applications caused by the economic downturn.

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Jacinta Allan, Skills and Workforce Participation Minister, told The Australian newspaper that unmet demand in the state of Victoria alone was running at about 13,000 places, significantly up on last year. Shortfalls have also been reported in New South Wales, Queensland and Australian Capital Territory.

The figures mark a departure from recent trends, when Australia's thriving economy meant that jobs were plentiful, suppressing demand for tertiary education.

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Bob Birrell, director of Monash University's Centre for Population and Urban Research, said that it was "highly likely" that the shortfall would grow. "The increase in places offered, at least at this stage, isn't keeping up with the increase in applications," he told The Australian. "This puts the ball back in the Government's court."

Australian universities are not the only ones to experience a surge in applications.

Institutions in the US have also reported record demand for places, driven not only by the economic downturn but also by modifications to student-aid packages.

Many of the elite universities, including Harvard, Yale and Stanford, made major changes to their financial-aid packages last year to include middle-class students for the first time.

At Stanford University, for example, from this year students from families earning less than $100,000 (?71,000) will not be charged tuition fees, which currently cost $36,000 a year.

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But it is the public universities that are being hardest hit by the perfect storm of recessionary budget cuts and spiralling demand.

The California State University system, one of the largest in the US, plans to slash its 460,000-strong enrolment by 10,000, despite a 20 per cent rise in the number of applicants, because it has suffered nearly $100 million of budget cuts.

Florida's four-year public universities, which collectively teach 300,000 students, have suffered $300 million in cuts and will trim their enrolment by up to 17,000.

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Both the University of Florida and Florida State University had more than 20,000 applicants this year, but they had already cut their intake from more than 6,000 to about 5,000 at each school.

This has taken its toll on minority enrolment. The number of black students in the entering class fell per cent at the University of Florida and 15 per cent at Florida State.

The 64-campus State University of New York system and the City University of New York have seen their budgets cut by more than $500 million so far this year. Despite a record number of applicants, they too are threatening to slash enrolment. So is Arizona State University, which has suffered budget cuts equivalent to the amount it takes to educate 6,000 students.

The US has already fallen behind other countries in the number of students earning bachelors or higher degrees. Once first in the world, it now ranks 16th in terms of bachelors degree production.

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john.gill@tsleducation.com.