Student loan repayments are set to rise to a record level as the UK’s economic recovery heats up.
But there are signs that borrowers are starting to struggle to get on the property ladder, with the amount of home-buyer credit rising only by 0.2pc in the past year.
Student loan debt peaked in 2014 at £1.2bn, but has been on a downward trend ever since, according to the Office for National Statistics (ONS).
And the average debt per borrower has risen to £18,000, up from £16,000 in 2014.
The increase in student loan debt has been partly driven by rising interest rates, but the impact is likely to be felt even more broadly as inflation is expected to continue its long-term downward trend.
At the same time, the amount owed by borrowers to credit card companies has increased.
This is partly due to a change in the way debt is calculated, with many people now being required to repay a portion of their credit card debt as interest payments instead of as principal.
While this has led to an increase in borrowing, it also means borrowers are borrowing more, with total borrowing now reaching £5.2 trillion, up £200 billion from a year ago.
What’s the problem?
In the UK, the total amount of student loan debts stands at a record £11.4tn, with some £4tn of that owed to parents.
About £1tn is owed by people under 25.
Of the remaining £7.7tn, about £2.4tr are owed to graduates.
There are some £1 trillion of uncollected debt, with an additional £1tr owing to the private sector.
These debts are mainly to people from the poorest areas of the country, with a majority of those owing to those in the lowest income groups.
But in the UK the amount owing by graduates is also increasing, with average debt rising by 0,8pc to £9,000.
The latest figures show the average interest-only student loan payment has increased from £7,700 in 2014 to £11,200 this year, while borrowers are expected to owe £1,250 more over the course of their lifetime.
“Student loan repayment has continued to rise in recent years, with borrowers continuing to pay interest on loans at higher rates than in the early 2000s,” said an ONS spokeswoman.
So how will we pay for it?
The government has pledged to help millions of borrowers with their repayments by reducing the amount they are allowed to borrow.
That means there will be a reduction in the amount students can borrow, with interest rates going down from the current 6pc to 3pc.
And borrowers will also be able to use a higher interest rate for their principal repayments.
In exchange, they will also have to pay a fee on their mortgage, and a levy on their bills.
According to the government, this will mean borrowers who can’t afford to pay back their student loans are likely to find it harder to pay off their mortgage in a year’s time.
How to save more money?
As a result, many borrowers are looking to use the extra cash they can save to buy homes, buy a car or invest in their future.
If you can afford to do that, you can take out a mortgage or get a loan from a property developer to help you save money.
Find out how to save money in your area by taking the Money Wise quiz here.
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