If you are a fan of MoneySavingExpert Martin Lewis, you will already have watched his ‘Big Briefing’ on student loan overpayments. If not, here is a summary.
Over one million students overpaid
Every year, over 2 million students graduate from university in the UK, and the majority start their working life with a student loan debt. A student who did a three-year course could have a student debt of around £50,000.
All student loans are repaid through payroll just like income tax, which means that once you are working, your employer will deduct the repayments from your salary before you get it. So the amount you receive in your bank account each month already has it removed.
As this is done automatically by the employer, most assume that it will be correct and all is well, but according to Martin Lewis:
In the last tax year alone, over ONE MILLION university leavers overpaid their student loans, according to our Freedom of Information (FOI) request. Yet reclaiming overpayments often only takes minutes.
There are four main reasons you might have overpaid your student loan. Here we take you through them, one by one.
Wrong Student Loan Repayment Plan
The FOI data shows 165,000 students were on the wrong repayment plan in the 2022/23 financial year.
As shown in the table above, there are different repayment plans depending on when and where you studied. For example, if you started your course in England between 2012 – 2022 you should be on Plan 2, and start paying back your loan once earning more than £27,295 per annum.
If your employer wrongly assumed you were on Plan 1 (Government guidance is that if employers don't know what type of student loan you have, they should make Plan 1 deductions), this requires you to make higher repayments by default.
For example, if you earn £30k and are put on plan 1 instead of plan 2, you will be paying £476 too much.
Repayments Made Despite Not Earning Enough
The FOI data shows that in 2022/23, 833,000 repaid their loan, despite not meeting the minimum earnings threshold.
You should not start repaying your student loan until you earn above a specific annual threshold; for Plan 2 that is £27,295.
However, repayments are taken from payroll monthly, so if your earnings vary throughout the year, one month you could earn over the threshold and have deductions made even though your total annual income remains under the threshold.
This could happen if you only work for part of the year; take on extra shifts; move to a higher or lower paid role; earn a bonus that puts you over the threshold for that month only; or go on leave for part of the year.
Money Deducted After Fully Repaid
The FOI data shows that in 2022/23, 57,000 students had deductions taken after the loan was fully paid.
HMRC should pay you back this money automatically, but it takes time. If you need the money now or think HMRC might have forgotten to refund you automatically, you can reclaim it manually.
The Student Loans Company (SLC) now receives weekly data from HM Revenue & Customs, with an update on how much you have paid towards your student loan. To help avoid overpaying once you have paid off your loan, the SLC now lets you make your last two years of repayments via direct debit.
Started Repaying the Loan too Early
The FOI data shows that in 20222/23, 39,000 students were affected.
If you started your course from 1998 onwards, you should not start repaying your loan until the April after you finished your studies, regardless of how much you earned after leaving.
For example, if you graduated in June 2022 you should not pay anything back until April 2023.
How to Reclaim
If you believe you have made payments despite not meeting the minimum earnings threshold (i.e. Big Reason 2 - 833,000 in 2022/23), first check if you are due a refund by logging into your online account, then fill out the online refund request form.
You will need your customer reference number, national insurance number and date of birth, and say which tax year you are claiming for.
For all other refund reasons you can call on 0300 100 0611 (Wales 0300 100 0370 and +44 141 243 3660 from overseas) to get your refund processed. Before ringing, dig out any old payslips, your payroll number, and/or your PAYE reference number.
There are no restrictions on how far back you can claim, even if you overpaid years ago.