Students are still overpaying their student loans, by £582 on average, as the government works to rectify issue.
In the November 2017 Autumn Budget, the Chancellor announced plans to fix the system that governs how graduates repay student loans that was causing millions of pounds of overpayment. It was announced that this would be overhauled by HMRC and the Student Loans Company (SLC) by April 2019.
According to a Freedom of Information request submitted by investment platform AJ Bell, 85,720 graduates paid off more than they owed in financial year 2016-17. On average, graduates overpaid by £582 – or £50 million collectively. Alarmingly, 40 people overpaid by £10,000 or more – an astonishing amount.
Laura Suter, personal finance analyst at AJ Bell, explains: “The issue arises thanks to outdated systems. HMRC collects student loan payment information monthly, when people pay it off through their pay cheques. However, HMRC only informs Student Loans Company once a year how much each individual has paid off.
“Compounding the issue is that it can take six months or more from the end of the tax year for HMRC to inform Student Loans Company of the repayment amount – meaning individuals can continuing paying towards their loan 18 months after the debt was cleared.
“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.
“Anyone who thinks they are close to paying off their student loan should contact Student Loans Company to calculate up-to-date information. They can also switch to paying off the loan via direct debit, rather than through their monthly pay, which in theory should stop the overpayment issue.”
Moneywise has contacted both HMRC and SLC for comment on the figures. An HMRC spokesperson comments: “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.”
SLC spokesperson adds: "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.”