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Have you overpaid your student loan?

Emma Lunn
Written By:
Emma Lunn

In 2020/21, 45,264 graduates overpaid their student loans, because their payments didn’t stop once the debt was settled.

In total £16.989 million was overpaid, with the average overpayment standing at £375, according to the Student Loans Company (SLC).

The average overpayment has dropped 38% since 2015/16, and the number of people affected is down almost a half (49%), after the Student Loans Company changed the system.

Massive overpayments in previous years owed much to the fact that repayments are made through PAYE and until April 2019, HMRC only sent 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 it started sending student loan information reported by employees once a week, and for people who are paid monthly by PAYE it sends it monthly.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “On the one hand, student loan overpayment isn’t as rife as it was in 2015/16, when more than 88,000 people overpaid an eye watering £53.5m. On the other hand, graduates are still handing over millions of pounds 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.”

How to avoid overpaying your student loan

The easiest way to avoid paying too much is by setting up a direct debit at some point in the final two years of the loan term. The direct debits automatically stop as soon as the money is repaid. However, only one in five people do this.

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.

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.