Martin Lewis: 1000s have overpaid their student loans

Glasgow University graduates. Picture: submitted
Glasgow University graduates. Picture: submitted
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This is a clarion call to everyone who’s been to university in the last 20 years or so. Hundreds of thousands of you have overpaid your student loans and with one quick phone call could be entitled to hundreds or thousands of pounds back.

I first dipped my toe in this subject last November, suggesting people try it to see if it happened. Ever since I’ve been swamped with success stories of people getting their cash back. There are three main ways you may be owed money – if you’ve questions the full details are in my www.mse.me/studentloanoverpayments guide, but in brief… 

1. You may have started repaying your student loan too early

You’re only eligible to start repaying your student loan in the April after graduation, which for most is around nine months after leaving. For those who didn’t finish university, it’s the April following leaving – even then you only repay if you earn over a set threshold.

– Started Uni in or after 2012 in England and Wales: Your repayment threshold has always been £21,000 though it rises to £25,000 next month (a big change, for more on how it works see www.mse.me/2012studentloanrepay.

– Started Uni before 2012 in England & Wales, or any time since 1998 in Scotland & Northern Ireland: The threshold has changed each year  It is currently £17,77 and rising to £18,830 in April.

Yet a freedom of information request we did, shows in the last three years alone, more than 100,000 university leavers repaid before 1 April, which they shouldn’t have done. And it’s likely there are 100,000s more going all the way back to 1998.

The reason this happens is if you are an employee you repay your student loan automatically through the payroll. So if your employer has the wrong info about your uni leaving date (which can be their fault or yours), or simply ignore it, then you may’ve started repaying too soon.

And if so you’re entitled to your money back. I’ve heard of so many success like Ann who tweeted me: “@MartinSLewis just rang Student Loan Company and have overpaid £1,100!” and Tom who tweeted: “Thank you @MartinSLewis 5 minute phone call to Student Loans Company and got £315 back from paying too early in 2009”. 

2. You could’ve overpaid in a particular year

You only have to pay back your student loan if you earn over the earnings threshold in a tax year. Yet most payrolls work on a monthly basis. So the £21,000 threshold is seen as £1,750 a month.

If you earned over that in a month, such as for a bonus, you could’ve had the money taken off you. Or if you stopped work half way through the year, money could’ve been taken off you, even though in total you earned under £21,000 in the year.

If that’s happened to you, you may be due money back, like Oli who said: “My starting salary was £25,000, but because my employment didn’t start at the start of the tax year I was eligible to get £450 back.”

Yet if you earned over £21,000 in a year, but due to irregular income too much was taken from you (eg you earnt £22,000 but had more than £90 taken) you can’t claim this back, as once you earn over £21,000 your repayments are paid at everything you earn on £1,750/month.

3.You could still be paying even though you’ve already paid off your loan 

A huge 86,000 overpaid this way in 2015/16 alone. This happens because the Student Loans Company only gets told by HMRC how much you’ve paid once a year (though it does retrospectively calculate the interest as if you’d paid each month).

As a result, people who’ve finished paying off their loans can still have money deducted up to a year later – this is due to change from 2019. It will write and tell you if this has happened, but that takes time, if you think you’re impacted call it and speak to it. 

In the meantime to avoid this happening, a new rule means in the last 23 months you can switch to repaying the loan by direct debit instead of through your employer – which should help.

So how do you get money back if you think you’re due?

In a perfect world you’d check your payslips, then call up the Student Loan Company with your national insurance number, payroll number and PAYE reference.  Yet the world isn’t always perfect, so do that if you can, it helps the Student Loans Company, but if you don’t have these things just call it on 0300 100 0611 and it will do its best to help.

If interest rates on student loans are high, isn’t overpaying good?

It’s predicted that 83 per cent of university leavers who started uni in or after 2012 won’t clear their full loan plus interest in the 30 years before it’s wiped. So apart from the very highest earning 17 per cent, for everyone else, extending the repayment time by starting early simply means you pay more back unnecessarily – so reclaim it.  

For those who started university before that or are in Scotland or Northern Ireland, as the amount borrowed is lower, you are more likely to clear all the debt before the loan is wiped. Yet here the interest rate is far lower, just 1.5 per cent, so you can actually earn more saving this than repaying your interest. Therefore if you need the cash now, such as to clear other debts, it’s still worth getting your money back.

Martin Lewis is the founder and chair of MoneySavingExpert.com. To join the 12 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip.