Consumer borrowing rose in October by the largest amount in more than two years, led by a big rise in the category that includes student loans.

The Federal Reserve said Tuesday that consumer credit rose at an annual rate of $3.4 billion in October, the largest increase since a $5.7 billion gain in July 2008. Consumer credit was also up in September.

But the strength in both September and October is being heavily influenced as the result of a recently enacted law that makes the government the primary lender to students.

The increase of $3.4 billion in overall credit surpassed the flat reading that economists had expected. The gain translated into a 1.7 percent rise and followed a 0.6 percent increase in September. Those were the first back-to-back monthly gains since mid-2008. Consumer credit had fallen for 19 straight months before the rise in September.

Americans have been reducing their borrowing since late 2008 as they have struggled to cope with a steep recession and high unemployment.

For October, the borrowing category that includes auto loans and student loans rose 6.8 percent following a strong 7.6 percent increase in September.

Much of that gain was powered by student loans from the federal government. The law change makes the government the primary lender to students. Previously, the federal government had been the guarantor of student loans that were being provided by private lenders.

Some of the strength last month also came from a rise in auto loans, reflecting stronger auto sales. A separate report Tuesday showed that consumers with less than rock-solid credit were starting to get car loans again as lenders loosen standards a bit.

The report from Experian, a credit reporting agency, showed that loans going to subprime buyers rose 8 percent in the third quarter, compared to the third quarter of 2009. It was the first year-over-year increase since 2007.

The Federal Reserve credit report showed that the category that includes credit card lending dropped 8.4 percent in October, a record 26th consecutive monthly decline.

Households have been borrowing less and saving more. This has been a major factor holding back overall economic growth because it has depressed consumer spending, which accounts for 70 percent of total economic activity.

The level for total credit in October stood at $2.4 trillion, down 3.1 percent from a year ago and 7.1 percent below the all-time high for consumer credit hit in July 2008.

The Fed's measure of consumer credit covers such categories as credit card debt, student loans and auto loans. But it does not include mortgages or any other type of loan secured by real estate.