Credit Cards & Loans
Covid remote working sees 50,000 graduates overpay loans by £20m
The latest figures from the Student Loans Company (SLC) bring an abrupt stop to years of falling over-repayments, which stood at £53.5m in 2015/16, affecting 88,000 graduates.
Now, the average over-repayment stands at £390, up from the £377 recorded in the previous tax year. It is also a 19% increase from the £17m over-repaid in the previous year, and a 15% rise on the 45,000 affected in 2020/21.
How are graduates paying more than they should on student loans?
This typically affected PAYE workers and historically, over-repayments occurred because of infrequent data sharing between HMRC and the SLC. It used to be the case that graduates would receive an annual statement by post which could have been out of date, making over-repayment more likely for those nearing the end of their loan agreement.
Simply, they continued to have monthly deductions until the SLC and HMRC communicated to each other that the graduate had finished repaying their student loan.
In 2020, the Government launched an Online Repayment Service so graduates could see more up-to-date information, with data shared weekly or monthly, rather than annually.
It also meant graduates could switch payments to direct debit as they reach the final stages of their loan repayments, update contact details and make one-off payments helping to stop the over-repayment problem.
However, with figures now on the up, the SLC blamed the Covid-19 pandemic for the “outlier year”, and stated: “With SLC transitioning to fully remote working, the decision was taken, in agreement with the Department for Education, to pause some customer contact practices within the repayments function. As a result, SLC was able to fully focus on ensuring students and providers received timely payments – providing some peace of mind during a particularly challenging period.”
As part of the decision-making process, it temporarily paused contacting borrowers to recommend they switch to direct debit in their final years of repayments, and stopped issuing letters to borrowers advising them of a credit balance.
“Once these processes were reinstated, and whilst working through the inevitable backlog, additional campaigns were launched to further reduce the number of those in over-repayment including increasing the automatic refund amount from £500 to £3,000,” the SLC added.
The update also stated: “An early-look at FY 2022/23 indicates that the declining trend has resumed, and over-repayments are at an all-time low”.
It added: “As at 31 January 2023 the percentage of those using the direct debit scheme has increased to a three-year high of 33% for FY 2022/23”.
How to avoid overpaying and how to get your money back
Sarah Coles, head of personal finance at Hargreaves Lansdown, said at the moment, “nobody can afford to pay a penny that they don’t need to, so it’s worth taking steps to cut the risks”.
She explained that graduates need to log onto the Online Repayment Service to update details and provide the right bank account details, so that overpayments can be automatically refunded.
“If you’re within two years of repayment, the easiest way to avoid paying too much is by setting up a direct debit. They will get in touch, and suggest this when you have a year to go, and it will ensure you don’t overpay by automatically stopping when the balance is repaid.
“If you don’t join the scheme, you’ll receive a message close to the end asking you to repay the total balance. This can feel like a cheeky request out of the blue, when you’ve been repaying diligently for years, but it’s designed to avoid overpayments, so if you can afford to do it, it’ll save the hassle of overpaying.”
Coles added that if you end up paying too much, the Student Loans Company will let you know you have a refund due, but you’ll need to reclaim it yourself.
“If you don’t make a claim, it will automatically refund up to £5,000 to the account it has on file. If you have overpaid £25 or less you can contact them and ask for a refund (0300 100 0611). If you don’t, the company writes it off.”