Graduates overpaying on student loans by £581 – and they don’t even know it
Even if you manage to pay off your student loan, you’ll keep paying money towards it for as long as 18 months after it’s cleared.
In fact, according to the most recent figures obtained from HMRC, a total of 85,720 graduates kept paying in 2016-17 alone.
And it wasn’t small change – the figures, obtained by AJ Bell as part of a freedom of information request, show the average amount over-paid was £581, with some people paying thousands too much before their deductions stopped.
“The scale of the overpayments by some individuals is particularly alarming, with 40 people overpaying by £10,000 or more,” said Laura Suter, personal finance analyst at AJ Bell. “They have paid money they simply don’t owe.
“These repayments affect graduates’ ability to get a mortgage approval, save for a house deposit or start saving for their futures.”
HMRC and Student Loans Company collected £49.78 million too much from graduates in 2016-17.
What’s going wrong
The problem comes from how little the taxman talks to the people running student loans.
“HMRC collects student loan payment information monthly, when people pay it off through their paycheques. However, HMRC only informs Student Loans Company once a year how much each individual has paid off,” Suter explained.
“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.”
They might also have to go through the process twice, if their overpayments fall in two tax years.
What you can do about it
If you’re smart, you might be able to head off this problem before the extra money is taken.
“Anyone who thinks they are close to paying off their student loan should contact Student Loans Company to calculate up-to-date information,” Suter said.
“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.”
There are also plans to reduce the problem in the future. But in the meantime, if you think you might be close to paying off your loan, you should take action now.
There is more information about what you can do to stop money coming from your pay needlessly here .
“The Government has pledged to improve the systems and communications between HMRC and Student Loans Company, so that by April next year graduates shouldn’t face this issue. This change can’t come soon enough for graduates who are out of pocket.”
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