With students typically borrowing £30k to put themselves through college it's staggering that when the loan is repaid the government don’t stop taking the money.
Students start to pay back their student loan once their income reaches £15,000 a year and that money is collected by the HM Revenue and Customs through employers or directly from the self-employed. This means that a graduate, earning £25,000 a year, will repay just £75.00 a month.
Linking repayment to ability to pay, charging interest at the rate of inflation and offering payment holidays to those who fall on hard times, the student loan is the most generous on the market. The system works and its heart seems to be in the right place, but in one critical respect the government’s student loan scheme is failing students badly.
"The repayments don’t just stop; it’s up to the borrower to advise the student loan company when the loan has been repaid," said Julia Kennedy, who repaid her loan last year and is now a Senior Lecturer at University College Falmouth.
The Student Loan Company (SLC) told the studentguardian that repayments do not automatically come to an end when a student loan is repaid, adding that overpayments will only be accounted for at the end of the year when the Revenue review their files.
The problem has been caused by a procedures failure that allows employers to continue to deduct payments from former students' salaries for up to 12 months after their student loan has been repaid in full. As a result H.M.Customs & Revenue (HMCR) is holding sums running into millions in over-paid student loan repayments.
A spokeswoman for the SLC, who asked not to be named, told the studentguardian that former students overpaying their loan would not be out of pocket and advises that they should inform the company as soon as possible to get their money back, adding: "former students who have overpaid have to write to the SLC and they will refund the money – this is how the system works," she said.
The government has estimated that students borrowing their way through university have overpaid £48 million since the scheme started in 1998. In a response to a written question from Peter Borne, the Conservative MP for Wellingborough, David Lammy the Secretary of State for Innovation, Universities and Skills, said: "As of 31 March 2008, 89,971 borrowers with income-contingent student loans had overpaid a total amount of £47,913,611 since the scheme began."
According to the SLC former students scheduled to repay their loans shortly after the financial year-end on April 5th could find themselves overpaying the SLC for up to twelve further months. While graduates were not initially offered any compensation, or interest for the over-paid sums, we understand that the SLC is putting in place measures that should compensate overpaying students for any loss.
The SLC and the Department of Families, Education and Schools appear to agree that no student should be worse off as a result of overpaying their student loan, but seem to miss the point that to continue to take money from students that don’t actually owe the money is causing unnecessary financial hardship.
Ms Kennedy, who received her refund for overpaid student loan repayments late last year, said: "I was overpaying £150.00 every month and that can make the difference between my being in the red at the end of the month or not."
Kennedy’s experience is not uncommon and more worryingly the government's own figures suggest that overpayment is becoming the norm with borrowers overpaying £533.00 on average.
The government claim that procedures at the SLC had been tightened up to assist borrowers, stating on Tuesday that all overpaid amounts were refunded with interest by the Student Loan Company when borrowers' accounts were reconciled following the end of each financial year. Nevertheless it remains the case that unless borrowers inform the SLC that their loan is repaid money will continue to be taken.
As the current procedures stand, however, previous students borrowing from the SLC and earning £25,000 a year could be overpaying as much as £900.00 in the year they pay off of their loan. Graduates expecting to repay their student loans shortly after the end of the tax year on April the 5, 2009 should not delay in advising the SLC, or face overpaying until as late as April 2010.