Graduates overpay £28m in student loan errors

The government is holding more than £28m of overpayments made to the Student Loan Company (SLC) in error, as a result of repayments being deducted from individuals after they have paid off their loans in full

Payments should stop when the debt has been cleared, but more than 510,000 students continued to have deductions made. The average overpayment was around £600 with total overpayments hitting £308m, representing nearly a tenth of total loan debt collected by the SLC.

Most of the overpayments were paid back, but £28.5m remains unclaimed and is held by the government. Officials said that often they cannot get in touch with the graduates to settle the sums due to multiple changes of address, emails and contact details. Even though students have to set up an online account when they first take out a student loan, many have never used it and do not know how to access their records online, having forgotten the email address they used when they first signed up at 18, for example.

Since 2011-12, the size of the student loan book (value of all the outstanding loan debt owed to government) has increased from £46bn to over £136.7bn, significantly increasing the volume of repayment traffic that the SLC and HMRC manage.

The figures came to light after a freedom of information request by higher education publication Research Professional found over £300m was overpaid in student loans over the nine-year period between 2009-10 and 2017-18.

The SLC said it has tried to contact people who have been overcharged to arrange refunds, and urged anyone who thought they had overpaid to get in contact.

The company writes to people who have two years of repayments left to suggest they pay by direct debit rather than through their employer to help prevent over-repayments.

A SLC spokesman said: ‘We want all customers to repay the right amount and not to over-repay on their loan.

‘Customers who do not participate in the direct debit scheme can also claim a refund at any time by contacting us’.

There has also been lack of regular updates from HMRC on payments received. Up until April this year, the SLC only received repayment information once a year from HMRC at the end of the tax year, meaning there could be a lag before the repayment system recognised the loan had been paid off.

For instance, even if a graduate paid off their loan in November, automatic payments could continue to be deducted from their salary for the rest of the tax year.

Since April 2019, HMRC has been sending repayment data to the SLC on a weekly rather than annual basis. This will allow the SLC to calculate and manage student loan accounts on a much more up-to-date basis, and is part of the SLC’s move to online balance information and its efforts to reduce the scale of over-repayment by customers nearing the end of their repayment term.

The Department for Education confirmed that data sharing has recently been improved to prevent such overpayments, which includes receiving payment information from HMRC.

A spokesman said: ‘This included changing the law in April to allow weekly data sharing between HMRC and the SLC, which will help to prevent graduates repaying too much.

‘If a borrower believes there has been an over-repayment, they should contact the SLC to seek a refund.’

Repayment of student loans starts when earnings reach £18,935 a year for Plan 1; £25,725 a year for Plan 2 and£21,000 a year for Postgraduate Loans.

Student loans are primarily collected through PAYE payroll and self assessment tax returns with 85% of repayments made by these methods. The remaining loan collection is collected directly from borrowers outside the UK tax system.

In June, the SLC confirmed in its annual review that it would be conducting feasibility studies on transferring repayments and the administration of repayments in whole to HMRC as well as reviewing future loan sale servicing options.

Report by Pat Sweet, additional reporting Sara White

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