Something’s gone horribly wrong with student loans. We’ve found that 57,000 former students are waiting for refunds worth £15 million. All because the Student Loans Company and HMRC can’t communicate.
The amount owed to ex-students came to light after Which? heard from several disgruntled graduates.
They found that payments were still being taken from their accounts even though they had already faithfully repaid all the money they owed.
A confusing and inadequate system
It seems the problem is that the repayments system is woefully inadequate. Here’s how it works:
- Student loans are repaid through monthly Pay As You Earn instalments that are managed by HM Revenue & Customs (HMRC).
- Repayments continue to be taken until the Student Loans Company (SLC) notifies HMRC when a loan has been cleared.
Sounds simple, right? Nah, not a bit of it. HMRC and SLC don’t co-ordinate their records until the end of the financial year. At this time they compare notes and if the loan has been repaid, SLC kindly tells HMRC to stop taking payments.
Of course, if you still owe some money – even one month’s worth of instalments – SLC gives the green light for HMRC to continue processing payments for the rest of the new financial year – unless they are told otherwise. This means your account could continue to be debited for another 11 months after you completed your repayments.
Detriment, what detriment?
SLC maintains that overpayments aren’t a problem because you’ll get your money back at the end of the next financial year, so borrowers suffer no financial disadvantage. But that’s rubbish.
Most people who are paying off student loans aren’t wealthy. So it’s possible that the extra overpayments do put them in a tight spot, such as when their rent increases or, heaven forbid, when Christmas is looming. They may end up taking out credit cards or loans, which each come with their own costs.
Given all the furore surrounding tuition fees, the already sizeable level of student debt is only going to rise, leaving more ex-students paying off even more and for longer. Surely it’s time for SLC and HMRC to get their acts together?