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Thousands of ex-students over-pay loans

Company responsible for scheme has taken £36.5m more than it was owed from wages

The controversial company in charge of collecting student loan repayments for the Government has taken tens of millions of pounds extra from unwitting graduates. Tens of thousands of people have been advised to apply for refunds from the Student Loans Company (SLC) after it emerged that the firm had collected an additional £36.5m from them in 2010-11 alone.

More than 63,000 former students carried on repaying from their salary, often for months, after they had paid off loans taken out to fund university education. The average amount overpaid was £577, although several graduates claim they paid out several thousand pounds more than they owed.

The total "over-repaid" by graduates is the highest amount ever taken by the SLC, despite assurances that it had made strenuous attempts to ensure it didn't collect more than was due. Graduates overpaid by £22m in 2009-10, compared to £19m in 2008-09 and almost £16m in 2007-08.

Student groups last night blamed a lack of communication between the SLC and HM Revenue & Customs (HMRC) for the millions disappearing from graduates' incomes.

Pete Mercer, vice-president of the National Union of Students (NUS), said: "The huge overpayments we're seeing annually on student loans demonstrate that a switch to real-time communication between the Student Loans Company and HMRC cannot come soon enough."

The revelation is the latest in a series of embarrassments to have hit the Glasgow-based organisation, founded in 1990 to administer low-interest loans for UK students. The SLC chief executive and chairman were forced to resign in 2010, following repeated criticism of delays in processing applications for financial support.

It emerged earlier this year that the new chief executive, Ed Lester, was being paid through a private company in an arrangement that helped to slash tens of thousands of pounds from his tax bill.

As student debt has risen to an average of £13,000 per graduate, almost three million people are now making regular payments to the SLC, often directly through their pay packets. The company has now revealed, in response to a Freedom of Information request, that 63,210 customers over-repaid a total of £36.5m in 2010-11, the last year for which figures are available.

The SLC claims the problem is caused because HMRC only tells it how much has been paid by each borrower once a year, usually a few weeks after the financial year ends in April. The time lag means graduates who settled their loans during the year may not have their direct payments stopped until several months later, when the SLC has received confirmation of how much they have paid.

"We contact all graduate customers who are identified as likely to overpay their loans and advise them of their options coming towards the end of their repayment," said Kevin O'Connor, SLC head of repayment.

"They can choose to take up our direct debit scheme or make arrangements to pay their loan balance."

Since 2009, the company has allowed customers coming to the end of their loan to pay by direct debit for the last two years, making overpayment less likely. But almost 60,000 of the 151,000 offered the facility have failed to take it up. The SLC insists all over-repayments are refunded with interest, but the onus is on borrowers to notice they have paid too much and demand their money back.