University loans drive a hike in unsecured debt

STUDENT debts are the driving force behind a new rise in unsecured lending, which is increasing again for the first time since the crash, according to a report released today.

This year, unsecured debt has risen by £8.5bn, a four per cent hike. However, new research by PwC attributes much of the new increase to rising student debts. Excluding obligations from higher education, UK households have paid off 25 per cent of their personal debt from the level recorded in 2008.

More traditional debts on credit cards, personal loans and overdrafts are still on the decline, down one per cent in 2013 so far. Despite a 14 per cent hike in payday and peer-to-peer lending over the same period, they make up only a hundredth of consumer borrowing.

Without including borrowing for education, unsecured debt is considerably lower in 2013 than it was in 2008, falling from £8,108 to £5,980 for the average household. Credit card write offs have also become much less common: in 2010, nearly one tenth of outstanding balances were written off, in comparison to only four per cent today, the lowest in over 10 years.

Despite rising consumer confidence and fears of a return to higher levels of personal debt, the figures suggest that household consumers are still reluctant to increase their borrowing.

Simon Westcott of PwC commented: “Even with the better economic outlook, relatively high levels of existing debt and the continued reduction in real incomes are leaving people cautious about further borrowing.”

According to the report, since the 1990s typical student loans have soared by more than 2,000 per cent, rising close to £8,000 on average today.

PwC estimates that students who began their degrees after the new system of tuition fees started in 2012 will leave with an average of £40,000-50,000 in accumulated debt.

Westcott added: “Although student loans are provided on very favourable rates and repayment terms, this significant increase in student debt is likely to have profound effects on graduates’ future borrowing and consumption patterns.”

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