Student debt doubles as credit card use explodes

The number of young people in the 18 to 25 year age group who have become over indebted has grown significantly over the past year with more than 50% of these consumers battling to pay their debt.

This is according to Debt Rescue, who have released a press release warning against the scourge of reckless lending, and especially its impact on young students.

The press release noted a joint study by Unisa and a student marketing company which found that student debt has more than doubled in the past three years.

The increase in debt seems to coincide with easing of access to credit for university students, who can now can legally acquire credit cards as long as they can prove that they receive a steady income of as little as R200 a month from a parent or a guardian.

This has resulted in 43% of students admitting to owning a credit card in the 2012 survey, compared to 9.5% in 2010.

Banking giant Absa holds the largest piece of the student debt pie, with 40%, followed by Standard Bank with 32%, the report said.

The survey of 1,220 students from the major metropolitan universities — Cape Town, Stellenbosch, Johannesburg and the Witwatersrand — revealed that 77% of the participants received their income from parents or guardians.

Neil Roets, CEO of debt counselling firm Debt Rescue, has warned that reckless lending is continuing, even though the National Credit Act was implemented to try and address the issue.

He said that the number of young consumers applying for debt review with them on a monthly basis had grown significantly over the past year.

Roets pointed out that over-indebtedness among the youth was due largely to the ease of access to unsecured loans from banks and credit from retailers and credit grantors, rather than specifically to the proliferation of credit cards.

He said that the dire situation had been confirmed in a statement from the National Credit Regulator, which stated “It’s a well-known fact that almost half of all credit-active consumers in South Africa have impaired credit records.

“In other words, about nine million consumers are in arrears (by three or more months) on at least one account, or have a debt judgment or administration order to their names.”

The NCR had earlier reported that of the 19.6-million credit-active consumers, more than 9.25-million have impaired records.

Absa retail banking head Arrie Rautenbach was quoted by Business Day as saying that the number of new accounts opened by the bank for consumers in the 18-24 age range had doubled since 2010.

However, “credit card customers in that age range make up less than 1% of total credit card lending”.

Rautenbach said Absa offered credit cards to students who already had an account with the bank and were registered full-time at an accredited institution.

“At a very low credit limit, Absa’s student credit card allows students the ability to handle debt responsibly,” he said.

National Credit Regulator (NCR) chief operating officer Obed Tongoane said lending money to youths was permissible as long as it was in compliance with the National Credit Act.

“It will really depend on the risk appetite of the credit provider and compliance to the National Credit Act, because before credit providers extend credit to consumers, they are required to conduct an affordability assessment.

“This is done by assessing the consumer’s current level of debt obligation,” said Mr Tongoane.

“If at the time of signing the credit agreement, the guardian signed surety for the youth, then the guardian will be liable for the credit agreement. However, if the youth is the one who signed the credit agreement, then they will be liable for the debt,” he said.

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