Are you paying back too much on your student loan?

How can I better manage my student loan repayments?

A report by the BBC at the weekend pointed out that some graduates may be paying back too much on their student loans - are you one of them?

The news doesn’t come as a massive shock: the system through which loans are now paid off has been in place since 1998, and it is that system that is causing some problems. It is only now that a lot of people who graduated around that time are coming towards the end of their repayments that it has been noticed.

How does the system work?

Currently, graduates start paying off their student loan when they are earning a salary of at least £15,000 (equivalent to £1,250 a month), at which point 9 per cent of their earnings are taken out of their pay packet each month by their employers. This contribution information is then sent to the UK tax office, HM Revenue & Customs (HMRC), who also deal with things such as income tax and national insurance. From there the information is forwarded to the Student Loans Company (SLC) who process it and send out statements to students to update them on how much of their loan has been repaid and how much is still owed.

So, what’s the problem?

Statements are only sent out once a year. This means that if graduates have come to the end of their loan repayment, but aren’t aware of the fact, they won’t find out until they receive their statement. Neither are the SLC able to provide a warning: there is no way for them to keep tabs on repayments throughout the year, only when they receive the information from the HMRC.

Timing is all important. “You are more likely to have made an overpayment if you finished paying off your loan in the middle of the tax year,” points out David Malcolm, student and policy office for student finance at the National Union of Students (NUS). “Repayments will only stop at the end or the beginning of the tax year when the HMRC and the SLC have been able to compare the figures, and as there are millions of borrowers, this takes a lot of time.”

Is anything being done to sort this out?

Yes, but any alterations to the current system aren’t going to kick in until next year. The SLC is working on a prediction system that will allow them to identify when graduates are close to paying off their loan, when they will write a letter asking the graduates in question to get in touch and discuss the remainder of their repayment. Borrowers should also be able to opt out of making payments via the HMRC when repayments are nearing the end and pay through direct debit to the SLC instead, which means they will be received in real time and will be easier to keep tabs on.

A spokesperson for the Department of Innovation, Universities and Skills (DIUS), who deal with policy decisions on student finance, explains another forthcoming initiative. “The SLC is introducing a new website facility specifically for repaying customers,” he explains. “That gives the customer their most current statement online, giving them the chance to calculate their remaining loan.”

What can I do in the meantime?

The SLC are more than happy for graduates to get in touch and find out what stage their repayments are at; they can then contact the HMRC to find out. If payments are nearing the end or should have stopped already there’s no need to panic, says Ian McLaren Thompson, spokesperson for the SLC “[Graduates] will be given guidance by someone at the SLC who will tell them what to send and when and we will take it on from there,” he says. “We then send a stop notification to the HMRC to get them to immediately stop taking any further payments and in most cases we can, at the same time, issue a cheque to rebate any over-payment that might have taken place.”

More advice on how to stay on top of loan repayments is below. However, the message seems to be that by keeping an eye on their payslip each month, graduates should be able to prevent paying higher prices for their higher education.

Top tips

• Keep a record of how much of your loan you have paid back; at the moment no one else is able to do it for you, so the responsibility lies with you
• Save your payslips so that you compare them, ensuring you are not being overcharged
• If you move house, inform the Student Loans Company of your new address; if they send you a letter about overpayment and you don’t receive it, it’s your fault!
• If in any doubt, call the Student Loans Company on 0870 240 6298, and for more information about student loans, visit their website at www.slc.co.uk