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Graduates overpay £23m on their student loans

Emma Lunn
Written By:
Emma Lunn

According to the Student Loans Company (SLC), in the 2019/20 financial year 54,516 graduates made unnecessary overpayments at the end of their loan.

This resulted in more than £23.1m being overpaid with the average overpayment standing at £424.

However, the average amount overpaid has dropped 30% in the past four years, and the number of people affected is down 38%, after the Student Loans Company changed the system.

Why are graduates overpaying?

Massive overpayments in previous years owed much to the fact that repayments are made through PAYE and until April 2019, HMRC only sent the SLC details of repayments once a year, so in the gap between repaying in full and sending the data, millions of people overpaid.

From April 2019 HMRC started sending student loan information reported by employees once a week, and for people who are paid monthly by PAYE it sends it monthly.

How to avoid overpaying your student loan

You should get a letter three months before your repayments are due to finish asking you to contact the SLC and repay the rest in full. At this point HMRC will contact your employer and get it to stop making deductions from your pay.

If you end up paying too much, the SLC will automatically refund anything up to £750 to the bank account it has on file. If you have overpaid £25 or less you can contact the SLC and ask for a refund.

You can avoid overpaying by switching to the direct debit scheme in the final two years of repayment. The direct debits automatically stop as soon as the money is repaid.

The Student Loans company writes to you a year before the balance is repaid encouraging you to join the scheme. It sends up to two follow-up emails and texts – but only 21% of people sign up.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Nobody enjoys repaying their student loan, so it’s particularly painful to learn that in 2019/20 55,000 people kept doing it even after the full debt had been settled.

“On the one hand, student loan overpayment isn’t as rife as it was four years earlier, when more than 88,000 people overpaid an eye watering £53.5m. On the other hand, graduates are still handing over £23m of their hard-earned cash that they don’t actually owe.

“Part of the problem is that people took these loans out so long ago that their contact details may well have changed, so the protections the SLC introduced to avoid overpayments won’t help them at all. All the tips on avoiding overpayments will end up sitting on the mat of a house they used to live in, or clogging up the inbox of an email account they no longer use.”

It’s worth being aware of roughly when your student loan is due to be repaid, and a couple of years earlier, log onto the Online Repayment Service to update all your details. That way you’ll get all the messages about setting up a direct debit, and you can avoid the overpayment saga entirely.

The five mistakes that mean you’ll overpay your student loan

* Ignoring messages from the SLC about the direct debit scheme. Joining this is the easiest way to avoid overpaying.

* Not keeping your contact details up to date with the SLC. This means you’ll miss all the messages about how to avoid overpaying.

* Ignoring messages asking you to repay the total balance. This can feel like a cheeky request out of the blue, but it’s designed to avoid overpayments, so if you can afford to do it, it’ll save the hassle of overpaying.

* Not signing up to the Online Repayment Service, which is the best way to check if you’ve overpaid and if you need to request a refund.

* Not updating the bank details held by the SLC, so the overpayments can’t be automatically refunded.