The Student Loans Company took £22m last year from graduates who had already paid back their loan in full, Channel 4 News can reveal.
More than 40,000 graduates have been left temporarily out of pocket, although the Student Loans Company stressed that it refunds all overpayments, including interest, as soon as possible.
The average overpayment by graduates paying back their student loans is £557, the Student Loans Company told Channel 4 News. In 2010, the company took £15m in overpayments. This year, it has taken £22.3m in total from 40,050 borrowers.
While the company endeavours to pay back borrowers as soon as possible once it is notified by Her Majesty’s Revenue and Customs of the overpayment, there can be delays. Consumer lobby group Which? reported last year that one graduate had to wait six months for a refund, causing temporary financial hardship.
We always say borrowers should monitor their own repayments. Student Loans Company spokeswoman
The Student Loans Company recommends that graduates keep a close eye on their repayments to ensure that they do not overpay in the first place.
A spokeswoman for the Student Loans Company told Channel 4 News: “We always say borrowers should monitor their own repayments.”
Graduates repaying their loans by direct debit are less likely to overpay, as they can see the money leaving their account and can calculate exactly when they will have repaid their loan. For this reason, the Student Loans Company recommends graduates take this route.
A company spokeswoman said it notifies graduates who are within two years of repaying their loan and suggests that direct debit is the best option to avoid overpaying.
This system was introduced in 2009 and since then the Student Loans Company has sent out 106,000 letters to graduates. Of these, 34,000 either opted to pay by direct debit or paid their loan in full.
However, for many other borrowers, the repayments come out of their salaries and are collected through the tax system, by Her Majesty’s Revenue and Customs (HMRC). The Student Loans Company only receives information from HMRC annually, at the end of the financial year, about what borrowers have repaid.
As such, it cannot determine what has been repaid until employers make their annual tax returns and HMRC notifies the Student Loans Company. As the company says, the result is that there is often a lag, and many borrowers near the end of their repayments are likely to overpay for this reason.
The Student Loans Company also does not contact borrowers when they have repaid their loan, Channel 4 News understands.
However, the company says it contacts all borrowers at the end of the tax year if they have overpaid, and then refunds them with interest. It also then sends a “stop notice”, via HMRC, to the payroll departments of companies to stop any more money coming out of the borrower’s salary.
But the onus is on the individual, the company says.
A spokeswoman told Channel 4 News: “We don’t send letters to confirm if the balance has been fully paid. If you realise you have overpaid before the end of the tax year, you can send us your payslips and we will refund it to you. If not, we will contact you at the end of the tax year.
“But we advise customers to monitor their balance and deductions. Really customers need to be monitoring to make sure they are only paying what they owe.”
If this was a bank doing this, we would be up in arms. Martin Lewis, MoneySavingExpert.com
Consumer champion website MoneySavingExpert.com has campaigned on this issue.
Martin Lewis of MoneySavingExpert.com told Channel 4 News: “It doesn’t help in the current climate to be taking away disposable income. Unfortunately without a massive re-jig of the entire student loans system, I can’t see a solution other than waving a huge red flag alerting people to this.
“It has to be remembered, if this was a bank doing this – taking more money from loans than necessary – we would be up in arms. Unfortunately it’s not the Student Loan Company’s fault, it’s the repayment system’s fault, but I do think the Student Loans Company could manage the communication better.”
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You can contact the Student Loans Company on 0845 0738 891