MSE News

Hurrah! Student loan accounts to be updated weekly

Hurrah! Student loan accounts to be updated weekly

The amount of interest you're paying on your student loan should become clearer, and you should be less likely to overpay, as HM Revenue & Customs and the Student Loans Company have started sharing data on a weekly basis.

Prior to 6 April 2019, the interest you paid was calculated using your average earnings each month – even if your income varied over the year.

As part of a convoluted loan repayment system, your employer deducts your student loan repayments from your pay packet every time you're paid (along with other taxes such as national insurance).

Your employer tells HM Revenue & Customs (HMRC) how much you've paid off your student loan, but before 6 April HMRC only passed on this information to the Student Loans Company (SLC) at the end of each tax year. 

Your repayments were then credited to your student loan account as if you'd paid in 12 equal monthly instalments, and the interest was calculated based on what your loan balance would have been if you'd paid in this way.

The irregular updates also meant some graduates continued to pay after they had cleared their loan, because the SLC didn't know they'd finished paying it off.  

But in a letter to MoneySavingExpert.com founder Martin Lewis, Universities Minister Chris Skidmore said that HMRC and the SLC had started sharing data on a weekly basis from 6 April, so the SLC should know how much you've paid off your loan at weekly intervals.

This should have a number of benefits, including reducing the number of overpayments, more transparent interest calculations, and allowing you to see your remaining balance more regularly from autumn this year, when the changes are fully rolled out.

See Martin's Student loan 6.3% interest – should I panic or pay it off? guide.

Martin: 'The student finance system is plagued by a lack of transparency'

Martin Lewis, founder of MoneySavingExpert.com, said: "The student finance system is plagued by a lack of transparency.

"One of the issues that frustrated graduates regularly contact me about is the fact that money is automatically deducted from their salary each month to pay off their student loans, but it isn't credited until the end of the year. They worry this means they're paying too much interest.

"In fact, the system wasn't as bad as it looks, as even though the money was only credited annually it was back-calculated as if it had been repaid each month. Yet the changes happening now will both improve the visibility of what is being done, and the calculations themselves.

"It also has welcome benefits for those close to repaying their student loans in full. It means they'll no longer go through an unnecessary rigour of overpaying and reclaiming, they'll simply stop paying when they've paid the loan off."

What will the changes mean?

If you're a student loan borrower, you don't need to do anything differently or take any action, but there will be a number of changes:

  • You're less likely to overpay. Student loan repayments are usually collected via your wages, rather than direct from your bank account.

    Your employer tells HMRC how much you've paid off your student loan for each pay packet, but prior to 6 April, HMRC only passed on the total amount you'd paid at the end of the tax year.

    As a result, some graduates who actually finished paying off their loans ended up having money unnecessarily taken from their pay packets, because as far as the SLC was concerned they still owed cash. It, therefore, didn't tell your employer to stop deducting student loan repayments from your wages.

    Borrowers were allowed to pay by direct debit – rather than from their wages – once they were close to paying off their loan, but 10,000s didn't do this and ended up overpaying. See our Student Loan Overpayments guide for how to reclaim.

    With the new system, the SLC will know much sooner when you have paid off your loan in full and can instruct HMRC (and thereby your employers) to stop taking money.

  • Interest will be applied more transparently. When you make your repayments via your salary, they're taken when you're paid – whether this is weekly, monthly or otherwise. If your income fluctuates, you'll pay different amounts at different points in the year, eg, if one month you earn £3,000, you'll repay more than a month where you earn £2,600.

    However, prior to 6 April at the end of the tax year repayments were credited to your student loan account as if you'd paid in 12 equal monthly instalments throughout the year.

    Interest was calculated based on what your loan balance would have been if you'd made repayments in this way, so you didn't pay more interest than necessary (but it didn't look like that throughout the year). Now, following the changes, actual repayments can be recorded and the interest you pay can be calculated on the actual balance you still owe each month.

    In reality, this will have very little consequence on how much interest you'll actually pay, but the calculation process will be a lot more transparent.

  • You'll be able to see your up-to-date balance from later this year. Previously, borrowers have had to provide the SLC with information from recent payslips to see the balance of their loans.

    This will no longer be necessary and the Government says the SLC is working to improve its website to let borrowers see their up-to-date balances, hopefully by autumn.