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

Table of Contents

• CATALYST
• SUMMARY
• METHODOLOGY
• ANALYSIS
  • Students are an important customer segment for banks
    • Students as a customer segment: banking on the future via cross-selling
    • Such a strategy is understandable given the increasing number of students in the UK
  • Lending is a large part of the student portfolio
    • Many banks offer a range of products, though the acquisition focus is on the current account
    • But lending is the more profitable product to sell
  • However, students are getting into greater and greater debt
    • The cost of attending university is becoming more expensive
    • As such, student debt has increased considerably over time
      • The majority of debt is in the form of Government loans, though overdrafts and credit cards are highly important too
    • Moreover, the average student beginning their course in 2006 will be at least £15,000 in debt by the time they finish
  • Given the more difficult economic environment and the increasing number of bankruptcies and IVAs, is student lending worth the risk?
    • Consumers are experiencing a more difficult economic time now
      • Such a situation is of worry to lenders who are already dealing with significant bad debt
      • This is more true than ever with the rising number of insolvencies by young people
    • While graduates are likely to earn more than non-graduates, they are not immune to economic difficulties
    • Because of significant student debt, there are suggestions that those under 30 are not big spenders on unsecured lending products
    • Moreover, even if students are better customers in the long-run, will they be loyal to their first current account provider?
  • Students continue to be viewed as a good investment, but banks are taking a number of precautions with student lending
    • In general, lenders are sharing more data in order to reduce bad debt
    • Lenders are pushing for Student Loans Company data to be shared
      • The Student Loans Company has become involved
      • The DTI is now holding a consultation over such "hidden data"
    • More importantly, lenders must be sure to lend responsibly
• APPENDIX
  • Supplementary data
  • Definitions
    • Balances outstanding
    • CAGR
    • Consumer credit
    • Gross advances
    • Student
  • Further reading
    • European consumer credit reports
    • UK consumer credit reports
    • Forthcoming consumer credit briefings
  • Relevant links
  • Ask the analyst
  • List of Tables
    • Table 1: The main banks compete for students by offering interest-free overdrafts, November 2006
    • Table 2: The number of students in the UK, 2000-2005
    • Table 3: Average student debt upon finishing a three-year university course in the UK, 2000-2006
    • Table 4: Percentage of student in debt by product, 2005
    • Table 5: Number of bankruptcies and IVAs, Q3 2005-Q3 2006
  • List of Figures
    • Figure 1: There are an increasing number of students in the UK, 2000/1-2004/5
    • Figure 2: Banks start by acquiring the student as a current account customer, followed by short and long-term cross-selling aims, 2006
    • Figure 3: Student debt has risen significantly since 2000, 2000-2006
    • Figure 4: The majority of student debt is in the form of Government loans, but overdrafts and credit cards are also important, 2005
    • Figure 5: Debt solutions have continued to become more popular in England and Wales, Q3 2005-Q3 2006
    • Figure 6: Datamonitor' s core consulting capabilities