Student Loan Overpayments

Student Loan Overpayments

Are you due a refund?

Many have student loan repayments automatically deducted from their wages each month, and it's easy not to notice and assume all is well. Yet 100,000s accidentally overpay their student loans each year – and if you have, you can reclaim.

Only recently, a MoneySavingExpert.com investigation found that graduates overpaid their student loans by over £100 million during the 2019/20 tax year. There are various ways you can unintentionally overpay, but many can reclaim £100s in just a few minutes – this guide shows you how to do it.

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Some inspiration first: 'I reclaimed £1,100 in five minutes'

Here's some inspiration from people who started paying their student loan back early and then reclaimed. We first revealed that 100,000+ had started paying early in an MSE News story in December 2017.

Since then, successes have come flooding in. Based on the stats we obtained from the Student Loans Company (SLC), the average overpayment was about £330. But some, such as Mekila, who left the University of East Anglia in 2008, have reclaimed much more:

I got £1,100 from the SLC for early repayments before April 2009. It took literally five minutes – it was so quick. The person on the phone looked up and told me how much I was due, and all I needed were my bank details for them to transfer the money across. I'm moving house next week and will be needing new carpets, so this will be a big help. I thought 'oh my God!' What a bonus. I can't believe it.

We also heard from Lyndsey, who told us:

Thanks to watching Martin Lewis's programme last night I contacted the SLC and have got a refund of £706 as I had started paying straightaway. Great just before Christmas.

And Michael said:

Me and my partner just phoned – 30 minutes later and we are due back £810 between us! Thank you so much for the advice. We can now pay some of our wedding and new kitchen off.

Lisa added:

I spent 15 minutes on the phone and got £555 back for overpayments on my student loan. Most was because of my maternity leave. Thanks so much, couldn't have come at a better time.

Managed to claim money back? We've heard lots of successes but want to hear yours. If you've had a big one, let us know by emailing news@moneysavingexpert.com.

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Common reasons you may have overpaid – so what you need to check

Figures released to MoneySavingExpert.com under the Freedom of Information Act this year reveal that £106.6 million was overpaid in student loan repayments during the 2019/20 tax year – slightly up on £105.2 million in 2018/19.

There are four main reasons you might have overpaid your student loan. Here we take you through them, one by one:

1. You shouldn't start repaying your loan until the April AFTER you've finished your studies yet many have had money taken early

It may sound odd, given how cash-strapped recent graduates often are. But many accidentally overpay their student loan immediately after leaving university, by starting repayments earlier than they need to.

If you started uni from 1998 onwards and were a full-time student, you should ONLY have started repayments from the April after you left your course at the earliest, REGARDLESS of how much you earned.

In practice, this means if you graduated over the winter you won't pay anything back until April 2021.

Overpaying your student loan by starting to repay it too soon isn't normally the fault of the Student Loans Company – usually it's down to an admin error on the part of the borrower or their employer, which can include:

  • Making a mistake while filling in the student loan section of the HM Revenue & Customs starter checklist form. Say if you answered the answer about when you finished your studies incorrect.
  • A mistake from your employer. Even if you're sure you've filled in the paperwork correctly, it could be that your employer mistakenly set you up to start repaying too early.

2. You shouldn't start repaying your student loan until you earn above a specific threshold yet many have started before then

The thresholds vary depending on when you started your course, and where you lived before university – you repay 9% of what you earn above the threshold:

  • Started uni in or after 2012 and from England or Wales? The repayment threshold is currently £26,575/yr, up from £25,725/yr in the 2019/20 tax year (see here for what it was in previous tax years). What counts is how often you're paid, so you repay when your earnings go over the weekly or monthly equivalent of this threshold.

  • Started uni 1998-2011 (or since and from Scotland or Northern Ireland)? The current threshold's £19,390/yr, though it's risen each year since 2012 (see what it was in previous tax years). Again, how often you were paid is crucial, so you'd have made repayments when your earnings went over the weekly or monthly equivalent of the threshold.

It's worth noting that when it comes to location, what counts is where you lived before going to university. For example, if you lived in Lancaster but went to university in Edinburgh, you're 'from England' for the purposes of your loan.

It's also possible to repay too much of your student loan within a single tax year.

This usually happens if your earnings vary throughout the year, so at one point you're earning an amount above the repayment threshold, but your total annual income is less than the threshold.

This might happen if:

  • You only work for part of the year.

  • You take on extra shifts in a specific month.

  • You move to a higher or lower paid role.

  • You earn a bonus which puts you over the threshold for that month only.

  • You go on maternity or paternity leave for part of the year.

When you make your repayments via PAYE, student loan contributions are taken when you're paid – whether this is weekly, monthly or otherwise. So you repay when your earnings go over the equivalent of the annual repayment threshold for your pay period, eg, if you're paid monthly, you'll pay back your loan every month your pay goes over the monthly equivalent of your repayment threshold.

However, if over the course of a tax year (which runs from 6 April to 5 April) your total income is less than the threshold, you can reclaim.

Martin's analysis: 'Overpaid? Why it usually IS worth getting the cash back'

Of course, if you reclaim money you've paid too early, the amount you reclaim will be added back to your student loan balance. But in most cases it IS still worth reclaiming now.

MSE's founder Martin Lewis said: "Exactly how to think about this depends on which type of loan you are on.

"For 'Plan 2' loans (students in England and Wales who started university after 2012), here student loan repayments act far more like a tax than a debt – and just like a tax, if you've overpaid, it's worth getting the cash back. While the interest rate is as high as 5.6%, some may assume starting repaying early is a boon.

"Yet the stats show the huge majority (over 80%) of these university leavers, all but the highest earners, are unlikely to clear their loan in full in the 30 years before it's wiped. Therefore for them, extending the repayment time by starting early will simply mean paying more unnecessarily. And therefore taking the overpayment back won't result in you paying any more in future, so it is a pure gain – do it.

"For 'Plan 1' loans (all students who started between 1998-2011, and students in Scotland and Northern Ireland since then too), here the amount borrowed is lower, the interest rate is lower and the repayment threshold is lower. You are more likely to clear all the debt before the loan's wiped, so there is less of a long-term gain taking back any overpayments.

"However, as currently the interest rate on the loan is 1.1%, and you can normally earn more than that in a top savings account, arguably you'd be better off to take any overpayments back and save it. Alternatively, if you have other debts that are more costly it's worth taking the money back to clear those. Otherwise whether you should take the money back is a much finer balance here."

3. You've paid off your loan but they've continued to take repayments

The Student Loans Company (SLC) only receives an update on how much you've paid towards your student loan from HM Revenue & Customs once a year.

As a result, graduates who have actually finished paying off their loans may still have money unnecessarily deducted from their pay packets because the SLC doesn't know they've finished paying them off. 

There are moves to fix this – the SLC now lets you make your last two years of repayments via direct debit, but many who didn't sign up to make their payments this way still ended up overpaying and you can reclaim if affected.

4. New. You are recorded as being on the wrong repayment plan meaning you've been repaying too much

More than 100,000 people overpaid student loans in the 2019/20 tax year as they were recorded as being on the wrong loan plan, a new MoneySavingExpert.com Freedom of Information request has revealed. Many can likely reclaim £100s or even £1,000s. 

One key reason for this is the Government advising employers that don't know which repayment plan staff are on to assume it is the 'Plan 1' loan, where you need to make repayments once you reach a lower level of earnings compared with those on 'Plan 2'. 

If you've started university since 1998, you'll have a Plan 1 or Plan 2 loan, depending on when you studied and where you're from – and the type of loan you're on determines how much you must repay each year:

  • BIGGER REPAYMENTS. Plan 1 loans are for students who started uni between 1998 and 2011, plus those from Scotland and Northern Ireland who have started since. In the 2019/20 tax year, which our Freedom of Information figures relate to, those on Plan 1 loans had to repay 9% of their income above £18,935/yr. 

  • SMALLER REPAYMENTS. Plan 2 loans are for students from England or Wales who started in or after 2012. Crucially, the repayment threshold for Plan 2 loans is much higher than for Plan 1, so you repay your loan much slower. In 2019/20, those on Plan 2 loans had to repay 9% of their income above £25,725/yr.

Between April 2019 and April 2020, 102,658 graduates and other borrowers had Plan 1 deductions taken when they should have been on a Plan 2 loan – and therefore paid back too much. In response to our Freedom of Information request the Student Loans Company (SLC) didn't give a figure for the total amount overpaid, but our back-of-the-envelope calculations suggest for someone on a salary of £30,000/year the difference in the amount repaid over a year could be £600+. 

There are a couple of different reasons why you could be on the wrong payment plan:

  • Your employer may have wrongly assumed you were on a Plan 1 loan. This may be because it made a mistake, or because it simply didn't know. Crucially, the Government's guidance for employers that pay staff via PAYE (pay as you earn) is that if they don't know what type of student loan you have, they should make Plan 1 deductions. This means that many will be on the plan that requires you to make higher repayments by default.

  • Making a mistake while filling in the student loan section of the HM Revenue & Customs (HMRC) starter checklist form. If you entered the wrong information here, your employer may have recorded you as being on the wrong plan.

Can I have been paying too little?

While it's less common, this can work the other way round too. The SLC told us that in 2019/20 some 30,224 borrowers who are actually on a Plan 1 loan were on a Plan 2 repayment plan instead. That means they had a higher repayment threshold than they were supposed to – and so will have underpaid their loan.

If you're in this situation and it later becomes clear to HMRC and the SLC that you're on the wrong plan, the good news is you won't have to make up any historic underpayments. However, you will have Plan 1 deductions taken in future. 

If you voluntarily repay you can't later reclaim

This guide is all about helping people who've accidentally overpaid their student loan, because they've started repaying too early, overpaid in a year or have repaid after clearing their debt.

Yet it's also possible to voluntarily pay extra money towards your student loan, via a one-off or regular monthly payment.

If you choose to pay extra towards your student loan, the SLC says you can't later claim this money back – so think very carefully about whether you want to repay more than the required minimum.

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How to check if you've overpaid and reclaim

If you believe you've overpaid, you can get in touch with the Student Loans Company (SLC) via their repayments Twitter or Facebook pages or ring SLC on 0300 100 0611 (+44 141 243 3660 from overseas), explain your situation and ask to reclaim the money you're owed. If you're reclaiming because you think you earned under the threshold in a tax year, you need to wait until that tax year is finished.

Before ringing, to make the process smoother see if you can dig out the following:

  • Old payslips
  • Your payroll number
  • PAYE reference number

If you don't have these and think you may have overpaid, it's still worth giving it a go, though it may take longer.

In addition, if you're reclaiming because you think you're on the wrong repayment plan, you should have checked what plan you're on with your employer or ex-employer first, and double-checked this doesn't correspond with the plan you should be on (if your employer won't help, see the quick questions below).

There are no restrictions on how far back you can claim, so while many reclaiming will be recent graduates, there's nothing to stop you doing this even if you overpaid years ago.

The SLC even says in theory you could ring and reclaim AFTER repaying your loan in full, although it's not clear how this would work in practice and this could be an admin headache for you, as you would only then have to resume repayments.

Quick questions

  • The SLC now allows those in the last two years of their loan repayments to repay via monthly direct debit, to avoid overpaying. Because you're paying directly to the SLC, you avoid the communication breakdown between it and the taxman.

    When you enter the last two years of your repayments, the SLC will write to you about this, so you can set up a direct debit. If you're already within the last two years of repayments it should also write to you – but if it hasn't, ring it on 0300 100 0611 (or +44 141 243 3660 from overseas). See our Student loan direct debit repayments MSE News story for full info.

  • If you do get a letter telling you you've overpaid, you'll just need to call on 0300 100 0611 (or +44 141 243 3660 from overseas) to arrange your reclaim. Alternatively, you can pursue your reclaim via SLC's repayment Twitter or Facebook pages.

    Use these same contact methods if you think you've overpaid but haven't been written to and don't want to wait. You'll likely need your payslips or P60s from the past two years to hand.

  • Since 2012, some part-time students have been able to get student loans.

    If you're a part-time student, the same thresholds apply as if you were a full-time student. But you're required to start repaying from the April four years after your course started, or the April after you leave your course, whichever comes earlier.

  • If you did a first degree and later went back to university to study for another qualification, you would still have been due to start repaying your loan from the April after you finished your FIRST course.

    If you studied an integrated master's degree (where the master's degree is part of the initial qualification), you would have been due to start repaying the April after you graduated or left the course, not the April after you finished the bachelor's element of the programme.

  • If your employer can't tell you which plan it has or had you recorded as being on, you'll need to check your payslips. 

    To do this, you'll need to look up what the repayment threshold was in the year that the payslip is from for the plan you should be on. Then take the period for which you were paid, and divide the annual threshold by how many pay periods you have in a year. For example, if you're paid monthly, divide the threshold by 12.

    Then, look at your monthly salary before tax was taken and deduct the monthly equivalent of the repayment threshold from this number. Nine per cent of the answer you get should be the same as the student loan deduction for that month – and if it's not, you may be on the wrong plan.

    The example below should help:

    If you earned a salary of £36,000/yr in the 2019/20 tax year, and were paid each month, you should have been paid £3,000/mth before tax, assuming no extra pre-tax deductions. If you should have been on a Plan 2 repayment plan, the repayment threshold would have been £25,725/yr, or £2,143.75/mth.

    So you should have paid 9% of the difference between £3,000 and £2,143.75, which is £856.25. Nine per cent of this figure is about £77. If you repaid far more than this in this example, you may be on the wrong plan
    .

  • The first thing to do is to contact your old employer to see if it can tell you the plan it recorded you as being on. You can then dig out old payslips or old P60s to check for student loan deductions and have a go at doing the maths yourself as detailed above to check if it matches up.

    Another option is to contact the SLC directly, but it can only tell you which payment plan you were on going back to March 2019, which is when it began sharing data digitally with HM Revenue & Customs (HMRC). Before this, the SLC says it won't know your loan plan as recorded by HMRC, although you can log in to your online account to view annual statements and payments before March 2019. 

    Alternatively, go straight to HMRC. It says it can guide you through the calculation using student loan deductions information held on its systems to identify what plan your employer was using. 

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