The repayment of student loans takes place through the payroll, with payments being deducted from employees’ pay when they start earning over the minimum threshold. As you would expect, deductions are taken from a student’s weekly or monthly pay and paid to HMRC by the employer.

The whole system is run by the Student Loan Company, whose data shows how much of the loan a student has paid off, and when they have finished paying off the loan. However, the Student Loan Company is only informed of the amount paid towards a student loan in any given tax year after the end of that tax year – 5th April. This means that deductions will continue to be made from a student’s pay until HMRC advise the employer to stop making deductions This will only happen when HMRC are informed that a student loan has been fully paid off. As a result, it is possible for over-payments to occur.

What Happens if an Over-Payment Takes Place?

If the statement for a former student, now in employment, that is sent to the Student Loan Company after 5th April shows payments of, for example £500, but there was only £200 outstanding on the loan at the beginning of the year, then there will be a refund due of £200.

It will take time, however, for HMRC to send the statement and for the Student Loan Company to process the figures. Then, the Student Loan Company will have to advise HMRC that deductions from pay should cease and HMRC will have to notify the employer to cease deductions. While this process is taking place, the employer is continuing to make deductions from the employee’s pay as they must until they receive notification from HMRC to stop. This means that in our example the employee has overpaid by £200 in the just finished tax year and they will be continuing to make overpayments in the new tax year whilst the system catches up.

What Does the Student Loan Company do to Try and Avoid this Such Overpayments?

As we understand it, the Student Loan Company writes to graduates who are in their last two years of repayments to offer alternative payment options to prevent them from overpaying. However, it is quite possible that some students contact details are out of date and, as a result, they may not receive this correspondence. It is important, therefore, that students update the Student Loan Company when they move or change other contact details such as email. It is also important that they check the statement of account which they receive annually so that they can keep track of the outstanding amount of the loan.

What About Refunds?

If a student’s annual earnings during the tax year – 6 April to 5 March – do not exceed the annual threshold for making repayments, but some student loan deductions have been made because monthly earnings in some months during the year were over the threshold, then the student can apply for a refund. This may occur if the student is only working for a few months of the year or earnings in some months were lower than the threshold.

On Average, Students Have Paid Back £600 Too Much

Data shows that on average students have paid £600 too much on their student loan. Indeed, there is £28m of overpayments on student loans waiting to be reclaimed. If you think you have overpaid, the first step is to contact the Student Loan Company on 0300 100 0611 to check if you have overpaid and arrange a reclaim if you have.

If you, as an employer, need some help and advice on dealing with student load repayments, please contact us.