I think he's more likely to develop as quickly by training every day with far better players and by being around the first team squad. I really don't see the issue with him being part of the squad and fighting for a place and minutes this season. That's pretty normal at his age and I don't see why it can't also be good for his development.
I think he got his experience out playing last year, and now it's time for him to become a part of the squad. It's a long season, he would get minutes. Our squad is nowhere near big enough right now for us to be letting decent players go.