There were fears over funding for more pupils staying on
The Chancellor has eased fears that sixth forms and colleges in England will have to cut places this September with a pledge of £650m.
In his budget speech Alistair Darling said the money would fund an extra 54,000 places in sixth forms and further education colleges.
There has been a big increase in students staying on after 16.
Colleges and heads in England had warned of cuts to courses and teacher posts because of a funding shortfall.
They had estimated there was a £200m shortfall in funds promised and what was needed to cater for all students enrolling for September.
Mr Darling told the Commons £250m was for this year and £400m for 2010/11.
School and college leaders have welcomed the announcement, saying it will cover the shortfall.
Martin Doel, Association of Colleges chief executive said: "Two thirds of these students are in college so this announcement is very welcome. This is excellent news too in terms of tackling youth unemployment.
"We are pleased that government has recognised the critical importance of funding 16-18 education adequately, particularly in such economically troubled times."
Mr Darling made the announcement as part of a package of measures designed to make sure young people were in education, training or jobs.
The government, he said, did not want the young generation to become "the lost generation" during the recession.
There would be consequential provisions for Scotland, Wales and Northern Ireland.
Under devolution, this involves the Westminster government allowing for an increase for 16 to 19 education in its budget settlements to those administrations, but it will be up to the individual administrations to decide what the money is spent on.
In Wales, head teachers have warned that as the budget will mean a £400m public sector cut, front line services could suffer.
The problem with sixth-forms and colleges in England emerged after the body which funds education for young people over the age of 16 - The Learning and Skills Council (LSC) - sent out letters early last month, giving schools what it called "final" allocations of money.
It later reduced the budgets, after admitting that it had under-estimated pupil numbers.
An extra 35,000 students had chosen to stay on in education than had been expected.
Education budget - key facts
Chancellor says he wants to protect spending on education and health
Public spending growth to be cut from 1.1% next year to 0.7% from 2011-2012
DCSF - £650m "efficiency savings" in 2011/12
Dius - £400m "efficiency savings" in 2011/12
£650m for sixth-formers/college students
£300m for college re-building programme
Critics of the LSC say rising numbers of students should have been predicted, because this was typically what happened in a recession.
Secretary of State for Children, Schools and Families, Ed Balls, said: "Today's announcement guarantees young people that their sixth form, college or training place will be protected and paid for by the government.
"This means that 54,400 more young people will be able to study or train, more than we had planned for last year."
The general secretary of the Association of School and College Leaders (ASCL) Dr John Dunford welcomed the announcement.
"I am very pleased that the Chancellor made the decision to allocate additional funding for post-16 places. This more than covers the projected shortfall for next year.
"Schools and colleges will be able to give places to all the students they have recruited and allocate some additional places for this September.
"The challenge for the government is to continue to fund growth ahead of current projections for education and training places so that we do not run into this problem again in future years."
The Chancellor also announced that more than £260m would be spent on training and subsidies to help young people get the skills or experience needed in sectors with strong future demand.
The president of the National Union of Students, Wes Streeting, said: "We welcome the government's commitment to provide education, employment and training opportunities to unemployed under 25s.
"The current recession has resulted in the worst youth employment prospects in a generation, and we are therefore pleased that the government recognises the importance of offering educational opportunities in order to help individuals and the economy back on their feet.
"We are also pleased that funding for additional college places will be increased by £250m this year, and £400m next year."
The DCSF is being asked to make "efficiency savings" of £650m in 2010-11 as part of the Treasury's £5bn savings.
Mr Balls says there will be no cuts to budgets already allocated to schools or key programmes.
"We have looked very hard at our budgets to identify ways we can be more efficient," he said.
"We will not cut budgets we have allocated to schools or key programmes but, more than ever, we expect public services to be efficient and deliver high levels of value for money."
Officials say there will be a 1% efficiency saving per student for post-16 learners in 2010 -11 and greater savings from bodies funded by the government but which are separate from it - such as the Qualifications and Curriculum Authority, the Teachers Development Agency and the National College of School Leadership.
The savings would be made without any change to the three year budgets already announced for individual schools or for key frontline programmes identified in the Spending Review and Children's Plan, the department said.
At Dius, officials say much of the £400m savings required will be made in further and higher education.
The department would be working with the funding bodies for 16 to 19 education and universities to see how the savings might be achieved in a way that was "consistent with the overall priorities for further and higher education".
Rick Trainor, president of Universities UK, said: "The additional £400m cuts identified by the Treasury as efficiency savings for Dius will be very challenging for the sector.
"However, we want to work constructively with the department during this difficult climate."