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Could you be overpaying your student loan?

13th September 2017

Could you be overpaying your student loan?

You – or your son or daughter – could be overpaying a student loan, because of a glitch in the way HMRC collects payments.

A recent report, based on information obtained under the Freedom of Information Act showed that more than 85,000 graduates had overpaid their loan in the year 2015-16.

How do loan overpayments happen?

The student loan is deducted from salary at source, once the graduate is earning more than £21,000. Overpayments happen when people are nearing the point where the loan is cleared. The problem lies in the fact that the Student Loan Company (SLC), which manages the loans, only asks HMRC for repayment figures once per year.

In some circumstances, loans have been cleared part way through the year, but because the SLC doesn’t have the latest information, deductions are still made from the graduate’s salary, resulting in the overpayment.

Can you get a refund?

It is possible to get the overpayment refunded, but as it’s often a while before the problem comes to light, it can take a while for the overpayment to be recognised and then refunded. The authors of the report say that the repayment collection system is old-fashioned and that both the SLC and HMRC should look at ways of improving and updating the system – particularly ahead of the government’s Making Tax Digital initiative.

What should you look for?

This may be something that becomes less of a problem over the years, because tuition fees have risen substantially, meaning that it will take graduates much longer to get to the point where their debt is nearly cleared.

However, we advise graduates to regularly check their interest rates and payment schedules so that they can keep their own repayment records, enabling them to contact the SLC when they believe full repayment has been made, and speak to HMRC to stop further salary deductions.

 

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