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Thousands of graduates overpay £50m in student loans

Paloma Kubiak
Written By:
Paloma Kubiak

Nearly 86,000 graduates paid £50m more than they owed in student loans, data reveals.

In total, 85,720 graduates overpaid their student loans by £49.78m in the 2016/17 tax year.

The average graduate overpaid by £581 but data obtained by AJ Bell revealed that 40 people overpaid by £10,000 or more.

While the 2016/17 figures are down on the £51.9m overpaid by 87,190 graduates in 2015/16, and £50m overpaid by 85,690 in the previous tax year, AJ Bell said the past seven years has seen a 75% increase in the amount overpaid, “showing the issue isn’t getting any better”.

Why are graduates overpaying their student loans?

In plain terms, it’s due to ‘outdated systems’. HMRC collects student loan payment information monthly, based on details from people’s pay slips. But, HMRC only updates the SLC with this data once a year.

Further, it can take six months or more from the end of the tax year for HMRC to inform SLC of the repayment amount. Essentially this means some graduates can continue paying towards their loan 18 months after the debt has actually been cleared.

Laura Suter, personal finance analyst at AJ Bell, said: “Those graduates who discover they have paid off more than they owe often face lengthy waits for refunds of the money that should never have been taken in the first place.

“These repayments affect graduates’ ability to get a mortgage approval, save for a house deposit or start saving for their futures.”

How to minimise the risk of overpaying your student loan

Suter said anyone close to repaying their full student loan should contact SLC to calculate up-to-date information. You may need to prove what student loan payments you have made by showing your payslips.

You don’t need to go to your accounts departments to get payments to stop and HMRC doesn’t get involved in the refund process.

One way to minimise the chance of overpayments if you’re close to paying off the amount is to switch to paying by direct debit, rather than through monthly pay, putting you in control.

Further, the government has pledged to improve the systems and communications between HMRC and SLC by April 2019, which should mean graduates no longer have to over pay then reclaim their money.

If you have already overpaid, it can take around a month for the money to be given back to you. SLC also adds interest, but only for the first 60 days after the overpayment has been noticed.

An HMRC spokesperson said: “SLC and HMRC have been jointly exploring how to improve management of repayment information, including sharing repayment data more frequently to help reduce over-repayments. From April 2019, SLC and HMRC will be able to share data more frequently.”

An SLC spokesperson said: “There is no need for customers to over repay their loan. Providing they have kept their contact details up-to-date on their online account, they will receive a letter from us when they are within 23 months of repaying the balance of their student loan account in full, inviting them to opt into the Prevent Over-Repayment Scheme. This moves them out of the PAYE scheme and on to a Direct Debit which means that their repayments stop immediately when their loan is repaid.”