Did you know that over a million people in the UK have overpaid for their student loans? Martin Lewis of MoneySavingExpert.com highlights that “if you have left uni and have an outstanding loan, this is important as you can claim hundreds or thousands back.” This isn’t just the spare change we’re talking about; we’re dealing with hundreds and thousands of pounds at stake for each individual.
Welcome to our guide on student loan overpayment. Whether it’s due to administrative errors, early repayments, or simply not keeping track, we’re here to shine a light on this overlooked issue. Stay tuned as we delve into the whys and the hows of rectifying overpayments on your student loans.
What is Student Loan Overpayment?
A student loan overpayment occurs when you’ve paid too much for a student loan that you owe.
For instance, let’s say you’re diligently making monthly payments through salary deductions to the Student Loans Company (SLC). As your career progresses, your loan balance reduces until it’s finally settled. Ideally, payments should stop. However, if there’s a delay in the system updating your loan status, payments can carry on, leading to overpayment.
The Student Loans Company reported that in the 2020 to 2021 academic year, 45,264 graduates overpaid an average of £375 due to this kind of oversight. However, a mistake in the system may not be the only reason why you may face a student loan overpayment. In the next section, we delve into the most common reasons that cause this issue.
4 Reasons Why Student Loan Overpayment Happens
Understanding why overpayments on student loans occur is the first step to managing them. Here are the four most common reasons that could lead to overpayment:
Administrative Errors
The most common reason for student loan overpayment is when there’s a discrepancy between your loan repayments and the balance the Student Loans Company has on record. One common issue is an incorrect record of your graduation date. If the SLC has you listed as graduating later than you did, they may not start collecting repayment at the correct time.
Another error may stem from a delay in communication between your employer and the SLC, particularly if repayments continue to be deducted from your salary even after you’ve repaid the loan. For example, if you’ve settled your loan in June, but the deductions continue through December due to outdated information, you’re facing half a year’s worth of overpayments.
The best defence against such overpayment is a good offence. Regularly verify your loan statements and ensure all personal data, including your graduation date, are accurate in the SLC’s records. Should discrepancies arise, contact the SLC at once.
Early Repayment
Repaying your student loan earlier than required can lead to overpayments, i.e. you may pay too much student loan. Graduates should know that repayments under the UK system typically begin in the April following graduation, allowing a grace period that many may not be aware of. For example, if you graduated in July 2022, your repayment obligation starts in April 2023, not immediately after your graduation.
Errors leading to early repayment often stem from incorrect completion of HM Revenue & Customs starter checklist forms or employer mistakes in payroll setup. To safeguard against early repayment:
- Double-check the student loan information on your tax documents
- Communicate with your employer to confirm they have the correct graduation date
- If you notice deductions before April following your graduation, contact your employer or the SLC immediately to rectify the situation
Salary Fluctuations
Paying off student loan is contingent on earning above a specific threshold, which varies based on when and where you started university. This threshold is based on your country of residence at the time of the loan, not where you studied. For Plan 2 loans, which apply to students who started university after 2012, the current threshold is £27,295 per year.
Repayments are deducted from your salary only when you earn above these thresholds. However, if your salary fluctuates or you have not worked a full year, you may find deductions have been made even if your annual earnings are below the threshold. This scenario may happen if you have a variable income – like in zero-hour contracts, freelancers, or those in commission-based roles. In such cases, you are entitled to a refund for any repayments made while your earnings are under the annual threshold.
Plan Transitions
Another reason for overpayment is when your employer has initially put you into the wrong student repayment plan. Each student loan Plan has a different repayment threshold. If you’re put in the wrong plan, this can result in you making repayments earlier or at a higher amount than necessary.
Here’s a snapshot of the current thresholds for reference:
| Country | You started university between Sep. 1, 1998, and Aug. 30, 2012 | You started university between Sep. 1, 2012, and July 31, 2023 | You started university on or after Aug. 1, 2023 |
| England | £20,195 | £27,295 | £25,000 |
| Northern Ireland | £20,195 | £20,195 | £20,195 |
| Scotland | £27,660 | £27,660 | £27,660 |
| Wales | £20,195 | £27,295 | £27,295 |
When your employer is unsure which student loan repayment plan you’re on, they may default to Plan 1, which has a lower income threshold for repayments. If you should be on Plan 2, which has a higher threshold before repayments kick in, you could end up making loan repayments before you need to.
To ensure you’re on the correct plan, consult your loan agreement for details about your plan. Then, confirm this information with the SLC. Share your findings with your employer’s payroll department to ensure the correct deductions are made. If there are any discrepancies, contacting the HMRC can also help clarify and resolve issues related to your repayment plan.
Should You Claim Money Back if You Overpaid?
If you’ve overpaid student loans, claiming your money back isn’t just a smart financial move – it’s your right. According to The Education (Student Loans) Regulations 1998 Act, you’re legally entitled to recover any funds that you’ve overpaid.
If you do not claim a refund, the overpaid amount remains with the SLC. According to the UK government guidelines, HM Revenue & Customs will eventually instruct your employer to stop deductions once the loan is fully repaid. However, this could take several weeks, potentially leading to more overpayments. The SLC is obligated to refund any overpayments, and they should contact you to arrange it, or it might be processed automatically. However, you can only request a refund for the tax years that have ended, and the SLC must confirm your annual income with HMRC before issuing a refund.
How to Reclaim Student Loan Overpayment
If you’ve identified an overpayment, you can initiate the student loan refund process by following the steps below:
1. Confirm Your Overpayment
First, confirm that you have indeed overpaid by checking your loan balance online through your account with the SLC. This will tell you whether you’ve paid more than you owe. Alternatively, you can call the SLC to request a statement of your account.
2. Gather Your Documentation
Compile all relevant financial documents, such as payslips, payroll numbers, and PAYE reference numbers, that show your loan repayments. However, your refund may take longer to process if you do not have these documents. Without these documents, you can still contact the SLC and provide them with as much information as possible, such as your details and an estimate of when the overpayments were made.
3. Submit Your Student Loan Overpayment Refund Request
If your annual income was below the threshold for the previous year, you have to claim your refund by completing SLC’s online request form. Provide your customer reference number, national insurance number, the date of birth, and specify the tax year you’re claiming for. Submit the form via email to below_threshold_refunds@slc.co.uk. You will typically receive an automatic reply when you submit the form, after which the SLC will start processing your information.
If you’re claiming a refund for any other reason than the income being below the threshold, call the SLC at 0300 100 0611 (England, Northern Ireland, Scotland) or 0300 100 0370 (Wales) with your customer reference number. Prepare for potential wait times due to busy lines.
4. Choose Your Refund Method
Once the SLC confirms your overpayment, you must choose how you want to receive the refund. The SLC typically sends the funds directly to your bank account. In exceptional circumstances, such as if you no longer have a UK bank account, you can notify the SLC to arrange an alternative payment method, such as a cheque or international bank transfer.
5. Follow-Up
After submitting the claim, follow up with the SLC if you do not receive a prompt response. Keep all your correspondence with the SLC in case you need to refer back to it.
FAQ on Student Loan Overpayment
If you still have questions, check out this FAQ section for clarity:
How To Find Out How Much Student Loan You Owe?
You can access the Student Loans Company (SLC) website and create an online account. Depending on whether you have a Plan 1 or Plan 2 student loan, you’ll log in using the provided credentials. Once logged in, you can view your outstanding balance, repayment status, and other relevant details. For Plan 1 loans, applicable to those who started their studies before September 1, 2012 (or 2013 in Scotland or Northern Ireland), and for Plan 2 loans, for those who started on or after September 1, 2012 (or 2013 in Scotland or Northern Ireland), the online portal provides a convenient way to manage and track your student loan information.
Is There a Time Limit to Claim Overpaid Loan Refunds?
There are no restrictions or a time limit on claiming a refund for student loan overpayments. You can request a refund for any overpayment you’ve identified, regardless of how long ago it occurred.
Will I Be Notified Automatically If I’ve Overpaid?
The SLC will usually contact you if they identify an overpayment. However, it’s advisable to regularly check your account and keep track of repayments to ensure any overpayments are addressed promptly.
What Happens to the Interest on the Overpaid Amount?
When you claim a refund, the SLC should also return any interest that has been applied to the overpaid amount.
Can I Claim Overpayments If I’m No Longer Living in the UK?
Yes, regardless of your current residency, you can claim a refund on a UK student loan. The telephone number for contacting the Student Loans Company from abroad is +44 (0)141 243 3660.
Does Claiming a Refund Affect My Credit Score?
Claiming a refund for a student loan overpayment does not affect your credit score. It is an administrative process and does not reflect borrowing behaviour.
Sum Up
In navigating the twists and turns of student loan overpayments, knowledge is truly power. Nurturing your financial literacy can be your best ally to spot and rectify any overpayments.
Remember, it’s not just about recovering what you’re owed – it’s about ensuring your financial journey is as smooth and error-free as possible. So, take charge, claim back your student loan overpayments, and steer your financial future toward brighter horizons.