By Tom WilsonThe bank that provides loans for university students has announced it will slash its loan books by more than $100 billion by 2021.
The announcement comes just days after the UK government announced it would cut £7.5bn in student loans from April 2019.
The announcement comes as student loan debts are rising at a record pace, rising by almost 4 per cent a year since 2011.
The Bank of England’s annual student loan report, released on Friday, said that, since 2020, student loan payments have risen by £17.7bn to £2.5tn.
It said the rise in student loan repayments was due to a rise in the proportion of people with a debt that is fixed and not variable.
The report said this rise in debt was driven by the fact that most borrowers were able to repay their loans more quickly, partly because of an increasing number of students entering higher education.
The number of borrowers with variable or fixed debt rose by 8 per cent to 8.2m in 2021, while borrowers with fixed debt increased by 13 per cent, to £1.9tn.
But the report said there were also significant improvements in the repayment times for those with variable debt, and the repayment time for borrowers with constant debt fell by 0.2 years, to 1.5 years.
This was driven largely by the introduction of variable rate loan terms, where borrowers could change their interest rate each year.
The annual report said that by 2021, the average repayments for variable borrowers would have risen to £23,500 and for fixed borrowers to £22,600, with the average for variable loans to rise to £30,400.
It said there would be an increase in student debt for the same period in terms of total payments, to an average of £35,500 for variable debt and £34,100 for fixed debt.
However, it said that those with fixed and variable debt were able “to defer or avoid repayment”.
This could mean that people with variable loans who are able to defer their repayments will end up with a bigger debt burden than the average UK resident, it added.
“The majority of borrowers will be able to continue to defer payment while having the same interest rate as they would have paid had they not done so,” it said.
The Bank said it would be “extremely challenging” for borrowers to avoid paying their loans on time, given that a majority of UK borrowers have the ability to defer payments.
It said it was “extremely difficult” for student borrowers to defer repayment, and added that a large number of people had not yet begun repayment, meaning they would not be able for several years.
“There is still a long way to go to make repayments as low as they could be,” the report added.
“The UK government has a clear commitment to reduce student debt by £1bn in 2021 to reduce the amount of debt outstanding by 20 per cent.”
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