The total stock of student loan debt on the government’s books rose to £100bn for the first time in March, with fears rising the government will have to account for a repayment black hole in the future.
Student loan debt held by government across the UK is now £100.5bn, according to data published today by the Student Loans Company, which administers the lending.
Borrowing by students is already bigger than credit card debt, which totaled £68.1bn in April, according to the Bank of England.
That burden could double to over £200bn over the next six years if it continues to rise at the current rate, according to analysis by economists at Natwest.
The rapid debt pile-up threatens to leave a big hole in the government’s balance sheet in future if repayment rates fall, according to Sebastian Burnside, a senior economist at Natwest.
As many as 40 per cent of graduates will not repay the loans in full, according to Natwest calculations, which would leave a shortfall in the loans as the Student Loans Company is unable to recover their full value.
“The gamble that’s being made by the government is that going to university improves [graduates’] earnings,” he said. “It’s going to take a few years to get a feel for whether that’s accurate or not.”
The debt pile has more than doubled since 2011, when there were only £40.2bn in loans on the government’s books.
It is currently growing at over 16 per cent per year, with the government’s spending watchdog, the Office for Budget Responsibility (OBR), forecasting £18bn more loans per year by 2021. The government sold off a £12bn tranche of older student debt at a discount in February to free up some cash.
The build-up also raises questions for graduates who have taken out the loans. Government could be tempted to lengthen the period of time before graduate debt is written off in an attempt to regain more cash. It could also modify the thresholds for payments, which have not risen since 2011.
Burnside said: “New graduates who are doing well for themselves face quite a difficult choice. Should they take the money they’re saving and pay the debt down fast? Or should they be saving for a deposit for a house?”