Around 68,000 graduates overpaid their student loan debt for the 2017-18 tax year, a freedom of information request from investment platform AJ Bell has revealed.
Poor communication between HM Revenue and Customs (HMRC) and the Student Loans Company (SLC ) has led to overpayments of more than £36m.
If you paid more than you owed, you may be entitled to a refund.
Here, we look into why graduates are being overcharged and how to claim your money back if you overpaid.
How do student loans work?
The SLC is a government-owned organisation that administers loans and grants to students in universities and colleges in the UK.
You may be entitled to borrow money from the SLC to help you pay for university or college tuition fees in the UK, as well as other living costs. You may also get additional money if you’re on a low income, are disabled or have children.
You only start repaying your student loan once you leave study and earn above a certain salary threshold.
If you started your course before 1 September 2012, or received a loan from student finance agencies in Northern Ireland or Scotland, you’ll have a so-called ‘Plan 1’ loan. Under this scheme, you’ll start repaying your debt when you earn more than £18,936 a year, £1,533 a month or £354 a week.
However, if your course started after 1 September 2012 in England and Wales, you’ll have a ‘Plan 2’ loan. This will only need to be paid off when you earn over £25,725 a year, £2,144 a month or £495 a week.
These repayments are paid through the PAYE tax system, meaning they are automatically deducted and sent to HMRC before you receive your salary.
- Find out more: when will your student loan repayments be written off
Why are graduates being overcharged?
HMRC keeps track of how much individuals have repaid on their student loans.
However, it only updates the SLC with this information once a year – and in some cases, it has taken HMRC an extra take six months to pass on these repayment details.
The irregularity of these updates meant that some individuals continued making payments long after their student debt was cleared.
An estimated that 68,000 graduates were caught out by this system in the 2017-18 tax year.
Collectively, the affected graduates paid off £36,359,200 more than was actually owed to the SLC. Split among the group, this means the average graduate paid around £534 too much.
- Find out more: how to clear your student overdraft
Changes from 6 April 2019
From the start of the 2019-20 tax year, HMRC and the SLC agreed to start sharing repayment data on a weekly basis, with the aim of making the system more transparent and reducing the number of overpayments.
The impact of this change remains to be seen, though AJ Bell warned some workers may still be caught out.
Laura Suter, personal finance analyst at AJ Bell said: ‘The system between Student Loans Company and HMRC was reformed in April this year after pressure from MPs and the media. It means the repayment information is now shared weekly, which should hopefully consign this problem to the history books.
‘However, while repayment information from April this year will be up to date, Student Loans Company still needs to tally and process the information for 2018-19, meaning that graduates may still be overpaying.’
- Find out more: student and graduate bank accounts
How to reclaim your student loan overpayment
If you believe you’ve paid too much, you need to contact the SLC to arrange a refund as soon as possible.
The SLC will check their records, and issue you a refund that can be sent direct to your bank account. The SLC will also tell HMRC to ask your employer to stop making deductions. It can take up to four weeks for deductions to stop.
Even while you’re still making student loan repayments, it’s worth getting in touch with the SLC to find out how much is still outstanding, and when you’re likely to have paid it off.
You can contact the SLC via post or by calling one of the following numbers:
- 0300 100 0611 (England, Northern Ireland or Scotland)
- 0300 100 0370 (Wales)
- +44 (0)141 243 3660 (Outside of the UK)