Wells Fargo analysts said this afternoon that student loans seem to be "crowding out" other types of consumer borrowing.

This view is based on the firm's examination of The Quarterly Report on Household Debt and Credit published by the Federal Reserve Bank of New York.

Analysts said that student loans were at 35% of non-mortgage consumer credit in 2Q12, increasing from 21% in 4Q07, which was when the recession had started.

They added that student loans have increased at a 15.9% compound annual growth rate since 2003 and are at $914 billion outstanding.

An increasing debt burden from education loans is probably going to limit the financial flexibility of many households, specifically in a scenario where employment opportunities are limited. Additionally, a considerable income gap has widened versus the pre-recession trend of income growth, they said.

Analysts said that a bright spot in the consumer credit markets has been auto lending, which is recovering together with the restructuring in the auto industry and a revival in auto sales.

But, auto loans outstanding have only risen slightly by 6.8% since the cycle low in 2Q10, analysts said.

They think that these trends would mean a continued measured response by borrowers and lenders to the new economic environment. They stated that the demand for credit is still comparatively weak inspite of the current historically low interest rates.

Consumers still appear hesitant to take on new debt until the economic opportunities look up, they said. Although the consumer ABS sector has seen a robust resurgence this year, analysts said that the slow-growing consumer credit can potentially hinder the further expansion as the market moves into 2013.

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