Student loan overpayments continue to rise

New figures obtained from the Student Loans Company under the Freedom of Information Act show that the number of overpayments and the amount of overpayment have continued to rise.

The latest figures for 2015/16 show that over 86,000 customers overpaid by an average of £592. This compares to 52,000 customers and an average of £540 in 2009/10.

The figures show that borrowers over-repaid almost £51m on income contingent repayment (ICR) student loans through their salary deductions in 2015/16. This means that the amount over repaid by graduates since 2009/10 has increased by 80 per cent from £28.2m in that year.

ICR student loan repayments are collected through the UK tax system where borrowers remain in the UK. However, as the Student Loan Company only receives information from HMRC about what customers have repaid once a year, after employers have finalised their annual tax returns, there is a time lag meaning thousands of people nearing the end of their repayments overpay unless they opt for payment by direct debit. If they do overpay, they can then face further hurdles and delays in getting their over-repayments refunded.

The number of people making over-repayments has risen steadily since 2009/10 when 52,600 people over-repaid via their employer payroll.

With the advent of Real Time Information for tax purposes and the forthcoming Making Tax Digital it is surprising that HMRC and the Student Loan Company have not yet developed a more efficient system which takes the right amount of money at the right time from people wanting to repay their student loans.

There is an irony in that employers are required under threat of penalties to report to HMRC in real time but there is no corresponding duty on HMRC to report each repayment to the Student Loans Company. There is a sense of double standards which results in some borrowers having to jump through numerous hoops or face a lengthy wait to receive their refund.

The latest figures show that the problem is continuing to worsen rather than improve. The Student Loans Company has said it is working with HMRC to explore opportunities to make better use of data received from employers in real-time but they need to get a move on to bring the current antiquated and inefficient system into the 21st century.

Employers need not worry that this might give rise to a spate of claims for unlawful deductions from wages claims from affected employees. This is because there is a legal obligation on employers to make deductions from salary in respect of student loan repayments and to pay this amount to HMRC. Until the employer receives formal notification from HMRC to stop making deductions from the employee’s salary for student loan repayments, the employer is legally obliged to continue to make these deductions.