Student Lending in the UK: Assessing Risk in an Environment of Rising Consumer Debt

DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
METHODOLOGY 1
ANALYSIS 2
Students are an important customer segment for banks 2
Students as a customer segment: banking on the future via cross-selling 2
Such a strategy is understandable given the increasing number of students in the UK 2
Lending is a large part of the student portfolio 3
Many banks offer a range of products, though the acquisition focus is on the current account 3
But lending is the more profitable product to sell 4
However, students are getting into greater and greater debt 5
The cost of attending university is becoming more expensive 5
As such, student debt has increased considerably over time 6
The majority of debt is in the form of Government loans, though overdrafts and credit cards are highly important too 6
Moreover, the average student beginning their course in 2006 will be at least £15,000 in debt by the time they finish 7
Given the more difficult economic environment and the increasing number of bankruptcies and IVAs, is student lending worth the risk? 8
Consumers are experiencing a more difficult economic time now 8
Such a situation is of worry to lenders who are already dealing with significant bad debt 8
This is more true than ever with the rising number of insolvencies by young people 9
While graduates are likely to earn more than non-graduates, they are not immune to economic difficulties 10
Because of significant student debt, there are suggestions that those under 30 are not big spenders on unsecured lending products 10
Moreover, even if students are better customers in the long-run, will they be loyal to their first current account provider? 11
Students continue to be viewed as a good investment, but banks are taking a number of precautions with student lending 12
In general, lenders are sharing more data in order to reduce bad debt 12
Lenders are pushing for Student Loans Company data to be shared 13
The Student Loans Company has become involved 13
The DTI is now holding a consultation over such "hidden data" 13
More importantly, lenders must be sure to lend responsibly 14
APPENDIX 15
Supplementary data 15
Definitions 16
Balances outstanding 16
CAGR 17
Consumer credit 17
Gross advances 17
Student 17
Further reading 17
European consumer credit reports 17
UK consumer credit reports 18
Forthcoming consumer credit briefings 18
Relevant links 18
Datamonitor's custom research capabilities 19
Ask the analyst 20

List of Tables

Table 1: The main banks compete for students by offering interest-free overdrafts, November 2006 4
Table 2: The number of students in the UK, 2000-2005 15
Table 3: Average student debt upon finishing a three-year university course in the UK, 2000-2006 15
Table 4: Percentage of student in debt by product, 2005 16
Table 5: Number of bankruptcies and IVAs, Q3 2005-Q3 2006 16

List of Figures

Figure 1: There are an increasing number of students in the UK, 2000/1-2004/5 3
Figure 2: Banks start by acquiring the student as a current account customer, followed by short and long-term cross-selling aims, 2006 5
Figure 3: Student debt has risen significantly since 2000, 2000-2006 6
Figure 4: The majority of student debt is in the form of Government loans, but overdrafts and credit cards are also important, 2005 7
Figure 5: Debt solutions have continued to become more popular in England and Wales, Q3 2005-Q3 2006 9
Figure 6: Datamonitor's core consulting capabilities 20