Tens of thousands of graduates are being urged to claim money back after it emerged the Student Loans Company (SLC) has taken millions of pounds in overpayments.
Figures obtained by MoneySavingExpert.com from the SLC show it took £22.3 million too much from 40,050 borrowers during the 2010/11 financial year, at an average of £557 each.
- 40,000 grads overpaid by combined £22m
- System means SLC unable to track payments
- Claim cash back or set up direct debit to avoid overpaying
The overall figure is up from £15 million in 2009/10, though the number of people who overpaid is down from 57,000.
To prevent overpayment, graduates can set up a special arrangement if they are likely to settle the debt within two years.
How are overpayments possible?
Graduates often continue paying because the SLC is only made aware how much has been collected by HM Revenue & Customs (HMRC) through borrowers' pay packets or tax returns once a year, usually around May or June, which is a few weeks after the previous financial year (running from April-March) ends.
Therefore, money is taken until the SLC is aware the debt is settled. This system relates to those who first took out a loan in 1998 or later, who have what's called an Income Contingent Repayment (ICR) loan.
Sometimes HMRC doesn't alert the SLC until even later, where there is an administrative mistake or an employer has failed to inform HMRC how much in student loan payments it has deducted.
At present, around 90,000 of the 2.2 million ICR accounts still active have yet to be updated with 2010/11 payments.
Only around half, 1.1 million, have received their statement with the 2010/11 payments applied. Statements for the other accounts that have been updated are due to be sent over the next few weeks, the SLC says.
How to get money back
The SLC says where an overpayment occurs, it will contact the customer and make the necessary refund.
However, consumer lobby group Which? said last year that graduates can still face long waits before they're paid overpayments back.
It reported one person had to wait over six months for a refund, and even then, it was two months short.
So check carefully, and if you're aware you've paid too much, contact the SLC to get the cash back as soon as possible.
Dan Plant, MoneySavingExpert.com money analyst, says: "This isn't necessarily anyone's mistake this time, more the fault of a poorly-designed cash collection system.
"Even though graduates pay out of their hard-earned wage-packet every month, the rules don't require this to be handed over, or even reported, to HMRC promptly.
"Make sure you claim any money back if it's not arrived."
Are you paid interest on overpayments?
Anyone who has paid too much will at least accrue interest at the same annual rate that the SLC charges ICR borrowers at the time, which at present is 1.5%.
How to prevent overpayments
If you're close to paying off your debt, contact the SLC on 0845 0738 891 to discuss your options.
If you don't want to risk overpayment, if close to paying your debt off, you can either make a one-off final payment or set up a direct debit to make the remaining installments, which puts you in control by allowing you to cancel it when the debt it settled.
Here, the SLC will alert your employer to stop taking payments but if this doesn't happen in time before your first direct debit you may still overpay, meaning another call is required to reduce future payments.
The direct debit option is only open to graduates with fewer than two years of repayments left.
If you want an up-to-date balance, you will need to call the SLC and have your latest loan statement to hand plus any payslips detailing money paid since then.
Plant adds: "The best way to fight this is get proactive. If you think you're getting close to wiping the debt, call up the SLC and ask to move to monthly direct debits – that way, you can be certain of only paying off what you owe."