The Government has estimated that students borrowing their way through university have overpaid the Student Loan Company £48 million.

In a response to a written question from Peter Borne, the Conservative MP for Wellingborough, the Secretary of State for Innovation, Universities and Skills, David Lammy 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."

The Student Loan Company (SLC) confirmed 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 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.

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.

"These amounts were refunded with interest by the Student Loan Company when borrowers' accounts were reconciled following the end of each financial year," said Minister of State Lammy addressing Parliament on Tuesday.

A spokeswoman for the SLC, who asked not to be named, said 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.

David Lammy told Parliament that procedures at the SLC had been tightened up to assist borrowers and said: "The SLC is putting a number of measures in place to help customers avoid overpayment. Later this year, all borrowers who are reaching the end of repayment will be given the option to make final repayments outside the tax system, via direct debit, to ensure they do not overpay. SLC have also introduced new guidance and tools, including an online calculator, to help customers work out their loan balance, and therefore when they are likely to pay their loan in full."

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."

"Students repay their student loan at the rate of 9 per cent once their income reaches £15,000 per annum and that money collected through HM Revenue and Customs alongside income tax and national insurance contributions. The repayment amount therefore varies according to their income," Lammy told parliament in January 2009.

This means that a graduate, earning £25,000 a year, will repay £75.00 a month in loan repayments. According to the National Union of Students  the typical student loan is £30,000 which at current rates would take at least 33 years to repay without allowing for the added interest.

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. The government admitted that former students that have overpaid an average of £533.00 each.

Graduates expecting to repay their student loans shortly after the end of the tax year on April the 5th 2009 should not delay in advising the SLC, or face overpaying until as late as April 2010.

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.


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