Are you one of 70,000 graduates overpaying on their student loans?
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Recent research has revealed that as many as 70,000 graduates might be over-paying on their student loans.
The student loan system can appear complex to both those still at university and those who have already graduated. So, how has this huge repayment happened?
Employers are under obligation to report to HMRC regarding their employees’ student loan repayments. Though this information is sent to and received by HMRC every time payroll is run, HMRC only pass this information on to the Student Loans Company once annually. This means that over 70,000 people overpay on their repayments, via their payroll - a total of over £40m in overpayments.
Student loans are a necessity for a majority of the UK’s students; these loans are repaid proportionally out of their salary after they're earning a certain amount, often through Pay-As-You-Earn (PAYE).
This repayment makes wages stretch a little less far than imagined, but even less far when there’s no effective means in place to stop repayments once they’ve settled their debt.
Employees’ student loan repayments are made every time the payroll is run, with their employer reporting details of what they’ve paid to HMRC. Obligated under the threat of penalties, employers have to use the RTI system to tell HMRC, but HMRC has no similar obligation to inform the Student Loans Company of these repayments; they only actually have to report and pay once annually - at the end of the tax year.
This means that employees’ repayments are kept by HM Treasury for up to a year before the Student Loans Company receive them, which causes problems when it comes to the payees’ final settlements.
Due to repayments not reaching the Student Loans Company until the end of the tax year, current tax year repayments can’t be seen until then, so they can’t see if the final payments have been made, and thus cannot send employers the ‘stop notice’ necessary for them to legally stop deducting repayments from their employees’ salaries.
A direct debit scheme was introduced in 2009 that put employees in charge of their final two years of repayments to avoid this ineffective, inefficient communication, but figures from the Student Loans Company’s Freedom of Information response published recently show this not to have helped.
These new figures show that a staggering 70,600 customers still overpaid via their payroll in 2012/2013, by a total of over £40.5m, with individuals overpaying an average of £570.
Thankfully it's unlikely that many recent graduates will face this problem in the near future, since it only affects those who have almost finished paying off their student loan.
It's worth being aware of the issue though, for the future.
Check how much you should be earning before you start repaying your student loan here.