Graduates over-repaying student loans by up to £10,000 a year
Outdated technology at the Student Loans Company has been blamed for thousands of graduates making excessive repayments on their student loans.
HM Revenue and Customs (HMRC), the government body in charge of tax (the taxman, to you and me), has accused the Student Loans Company of having outdated technology and processes that cause thousands of graduates to over-repay their student loans.
Figures obtained in the summer revealed that, in the tax year 2015–16 alone, 86,000 graduates had repaid a total of £51 million more than they owed.
Those worst affected ended up overpaying by as much as £10,000, with the average over-repayment £592.
How has this happened?
Student Loan repayments are made each month by an automatic deduction from your salary. While this system makes it difficult to ever miss a payment, it does make it a lot easier to forget you're even paying it.
That may sound like a load off your mind (and in many ways it is), but in reality it also means that it's easier not to notice when something goes wrong.
Every month, HMRC collects information from employers regarding how much of their loan graduates have repaid. This means that they have the most up-to-date information on whether or not you've got anything left to pay back.
However, HMRC only hands over this data to the Student Loans Company once a year, and this is often months after the end of the financial year. HMRC claims that it can't give the Student Loans Company the data more regularly, as it believes the SLC's technology is too outdated to handle it.
Unfortunately for graduates, this means that even if you finish repaying your Student Loan midway through the financial year, the SLC may still take repayments. This is because it hasn't got the up-to-date info telling them that you've got nothing left to pay back.
As student loan repayments increase with salary, any high-earners affected by this issue will potentially overpay by hundreds of pounds every month.
Does this problem affect you?
The good news is that this issue is unlikely to affect any recent graduates. The extra payments only seem to be hitting people who are close to clearing their debt, which means that unless you've been rolling in it since leaving uni, this group is unlikely to include you.
In fact, as we always say, the chances of you ever fully repaying your loan are very low. Most current students and recent graduates will have a Plan 2 loan, meaning that the debt will be wiped after 30 years – no matter how much or how little you've paid back.
As the debt is so large (£50,000 on average) and the repayments are so small (just 9% of any earnings over £21,000 a year), and interest is constantly being added on top, it's estimated that 77% of students will never pay back the full amount.
However, just because this particular issue is unlikely to affect you, that doesn't mean you shouldn't keep an eye on your repayments.
How to find out if you've overpaid
At the end of the financial year (end of March), all taxpayers will get a P60. This will give you a complete summary of how much you've earned and how much tax you've paid across the year, including student loan repayments.
If you've earned the same monthly salary for the entire year (April to March), all you need to do is subtract £21,000 from your annual salary, and then calculate 9% of the remaining amount – that's how much of your Student Loan you should have repaid.
If your monthly salary has changed during the year, you'll have to find your payslips and add together each month's gross salary (how much you're paid before any tax deductions). Then the steps are the same: subtract £21,000 from this number, and calculate 9% of the remaining amount.
Compare the number you've calculated to the Student Loan repayment amount on your P60. If the number on your P60 is bigger, re-do the calculations just to make sure. If they still don't match, you may have overpaid and you should contact the Student Loans Company as soon as you can on 0300 100 0611.
Note that when you call, you'll need to have your P60 or payslips from both the previous and current financial year.
Student Loan repayments aren't the only thing deducted from your salary each month – see our guide to getting student tax refunds to see if you're entitled to receive any money back.
